Can You Use a VA Loan For An Investment Property?

Mark Severino was a U.S. Army captain in the reserves for 10 years, a stretch that provided an opportunity to use a VA home loan to buy a primary residence. But he wanted something more.

Written by: Craig Richardson

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Severino used the program in 2015 on a property in Orlando with an additional dwelling unit, or ADU, in the backyard. He rented that out to cover the bulk of his mortgage and lived in the main house to fulfill the occupancy requirement of a VA home loan.

When he moved to Dallas in 2017, he sold the place in Orlando and recouped his full VA entitlement, which he used on a second loan to buy a duplex, again with no money down.

“In that case, I utilized the property as my primary residence and also rented out one half of the duplex,” said Severino, now the owner of Best Texas House Buyers LLC in Dallas.

“The VA loan is undoubtedly one of the best benefits to service members and qualified borrowers. It is slightly complicated to set up and not accepted at all properties. However, I highly recommend this amazing program to anyone who qualifies.”

Severino’s story provides one example of how different types of VA home loans can be used on investment properties with one very large caveat: The property must be purchased as a primary residence.

His story is a good example of how qualified homeowners can use passive streams of income to further defray mortgage costs.

“I always looked at the VA loan with the purpose of getting into real estate,” Severino said. “Having less of a mortgage draining me per month has allowed me the freedom to better invest in my business.”

How VA Loans Work

A VA loan is a mortgage, or a refinance backed by the U.S. Department of Veterans Affairs. The program is meant to provide housing support to active duty military members, veterans, and their spouses. It is not meant to be an investment tool.

To take out a VA loan, you must first qualify for a Certificate of Eligibility. The requirements vary slightly for active duty service members and veterans. National guard, reservists, those discharged because of hardship or certain medical conditions and surviving spouses may also qualify.

The benefits of VA home loans go beyond buying an existing home as a primary residence and include building, repairing, refinancing and adapting homes for someone with a disability.

The way it works, the U.S. Department of Veterans Affairs guarantees a portion of the loan so lenders can provide more favorable terms than conventional mortgages.

While the process typically takes longer than qualifying for a loan outside the program, those terms may include zero down payment, no private mortgage insurance, a lower interest rate and closing costs, and friendlier credit score minimums.

“I believe the benefits of VA loans outweigh their restrictions regarding investment properties, especially for veterans prioritizing low upfront costs with favorable terms,” said Yancy Forsythe, a Marine Corps vet and founder of Missouri Valley Homes. “If your primary goal is to invest in rental properties without occupying them, other loan types might be a better option.”

Can I Use a VA Home Loan To Buy a Rental Property?

VA home loans are meant for primary residences. So, you cannot use a VA home loan to buy a property with no intention of living in it.

When you take out the loan, you must sign papers indicating your intention to use the property as a primary residence. With that understanding come perks that highly recommend VA home loans.

“Typically, buyers can purchase the home with primary residence financing that has an extremely competitive interest rate,” said Air Force veteran Evan Kaufman, a founder of WeVett Home Loans in Kansas. “Couple this benefit with the option to put low or no money down on the loan and the future benefit of utilizing the VA IRRRL (streamlined refinance) option. This offers eligible buyers an incredible opportunity not seen in other types of financing options.”

Typically, VA home loans carry an occupancy minimum of six months to a year but allow for extenuating circumstances such as reassignment to a non-commutable location.

“When on assignment, if you don’t need the home yourself because you are abroad for an extended period of time for your service, you can rent out the home,” said Abby Waltz, national director at Homes For Heroes, a Michigan company that works with real estate agents and lenders across the country to secure favorable home-buying terms for military and other “heroic” workers.. “Even better, the tenant doesn’t need to be a former or serving member of the U.S. military.”

How To Use a VA Loan for Your Rental or Investment Property 

After the occupancy requirement is satisfied, owners can rent out their properties with no restrictions.

Until then, there are creative ways to use a primary residence purchased with a VA loan to create passive income.

Waltz mentioned vacation platforms as one potential revenue stream.

“Veterans can list their VA homes on Airbnb, Vrbo, etc., and could consider even working with traveling health-care professionals looking for short-term accommodation when the veteran isn’t occupying the home,” she said.

It’s always a good idea to check with your lender for any restrictions.

If creating passive rental income is your intention, mortgage lenders recommend being pre-qualified for a loan.

Rent Out a Unit in Your Single-Family Home

There are no additional program restrictions on how you use a property purchased on a VA loan beyond the big exception already mentioned: you must use part of the house as a primary residence for a specified length of time.

As long as you live there, you could rent a guest house on the property, or, more typically, a room or two in a single-family home.

Buy a Multi-family Property with a VA Loan

The VA allows the purchase of a multi-family property. It covers buying a duplex, triplex or quadplex but not, for instance, a larger apartment building of more than four units. But, again, you must occupy one of the units as your primary residence.

Can I Rent Out My House With a VA Mortgage if I’m Away on Deployment?

Yes, as long as it’s considered your primary residence.

Just consult with your lender to double check that you’re not violating any terms of your contract. The same with local laws and association restrictions.

Can a VA loan Be Used for Commercial Property? 

That bowling alley you’ve had your eye on. Sorry, it’s not a primary residence so you can’t use a VA loan to buy it or any other commercial property.

If you’re looking at purchasing a mixed-use facility – a building that’s both residential and commercial – you’re likely still out of luck.

The commercial space in a mixed-use property can’t exceed 25% of the total square footage and the building and, as already mentioned, can’t contain more than four units.

Occupancy Rules and Exceptions

Occupancy rules are a significant consideration in applying for a VA home loan. The first requirement is that the borrower must occupy the residence within 60 days of the loan closing, though there are exceptions, such as the need for extensive repairs that prevent you from moving in, and the deployment status of the military member taking out the loan.

While the VA itself doesn’t enforce a stringent rule on a minimum occupancy period, VA lenders often require borrowers to sign documents indicating they’ll use the property as a primary residence for at least 12 months.

There are exceptions beyond deployment, such as for veterans approaching retirement, or for major renovations or other unforeseen circumstances approved by the lender.

Also, there is an occupancy exception if you refinance using a VA Interest Rate Reduction Refinance Loan. An IRRRL can potentially allow you to rent your home sooner.

VA Home Loan Entitlement

An entitlement is the amount the VA will guarantee on a borrower’s loan should the borrower default. It allows the borrower to secure better loan terms since it acts in part as private mortgage insurance. Typically, those terms include zero down payment.

When a veteran or active-duty military member gets a Certificate of Eligibility (CEO) to take out a VA loan, the amount of the basic entitlement is spelled out.

There’s no limit on how many VA loans a borrower can take out in a lifetime, but the first loan must be settled before full entitlement is available for a second VA loan.

A second loan “happens when a veteran has a partially used VA loan and still has remaining entitlement,” Yancy Forsythe said. “For example, if a veteran purchased a home with a VA loan and then relocated due to PCS (permanent change of station) orders or other reasons, they can use their remaining entitlement to buy another home with a VA loan in the new location.

“But keep in mind that the amount of loan they can take out without a down payment might be limited based on the remaining entitlement and the county loan limits.”

While the VA home loan process can be complicated, taking out a loan to buy a primary residence offers a number of benefits.

But if your goal is to invest in rental properties, conventional loans are a better choice.

“With investment properties, like anything else, time is money,” Waltz said. “Securing an investment property loan can be quicker than going through the VA loan process. In short, VA loans are primarily meant to get the military into houses, not use the property for additional income.”

About The Author

Craig Richardson

Craig Richardson is a military veteran who started his journalism career while serving in the Navy. Following overseas deployments to the Med and Middle East, including service in Operation Desert Storm, he left for the private sector but continued with journalism. He has worked for several publishers and news organizations over nearly 30 years and continued to cover stories with ties to veterans and military affairs throughout his career.

Sources:

  1. N.A. (ND) VA Home Loan Guaranty Buyer’s Guide. Retrieved from https://www.benefits.va.gov/homeloans/documents/docs/VA_Buyers_Guide.pdf
  2. Dehan, A. (2022, August 16) How To Use A VA Loan For An Investment Property. Retrieved from https://www.quickenloans.com/learn/va-loan-for-investment-property
  3. Gobel, R. (2023, June 15) What Are The VA Loan Limits? Retrieved from https://www.forbes.com/advisor/mortgages/va-loan-limits/
  4. N.A. (ND) Eligibility requirements for VA home loan programs. Retrieved from https://www.va.gov/housing-assistance/home-loans/eligibility/
  5. Odion-Esene, B.; Witkowski, R. (2022, April 1) What Are The VA Loan Requirements? Retrieved from https://www.forbes.com/advisor/mortgages/va-loan-requirements/