Can I Use A VA Loan For An Investment Property? A Complete Guide

Purchasing an investment property can be an excellent way to build wealth But coming up with the down payment on a conventional loan can be a major barrier for many potential investors This is where VA loans come in. VA loans require no down payment, and offer significant other benefits like low interest rates. But can you actually use a VA loan to purchase an investment property?

The short answer is yes, you can use a VA loan for an investment property, but there are some specific guidelines and criteria you need to follow In this complete guide, we’ll cover everything you need to know about using VA loans for real estate investing.

VA Loan Basics

First, let’s start with a quick overview of what VA loans are and how they work. VA loans are mortgage loans backed by the US Department of Veterans Affairs. They offer huge benefits to eligible borrowers, including:

• No down payment required – This is the main appeal for real estate investors
• No monthly mortgage insurance – Saves significantly on monthly payments
• Competitive interest rates – VA loans often beat conventional loan rates
• Limited closing costs – Lower fees than other loan types
• Relaxed credit guidelines – Easier to qualify than conventional loans

However, VA loans do come with some key eligibility requirements:

• You must be an active duty service member, veteran, or qualified surviving spouse
• The loan must be for your primary residence – this is key for investment properties
• There are income and credit requirements

Now let’s look at how you can use VA loans for investment properties specifically.

Using a VA Loan for a Primary Residence With Rental Income

The main requirement with VA loans is that the home must be your primary residence. But the good news is you’re allowed to rent out part of your primary residence and still meet this requirement Here are two ways investors take advantage of this

Rent out extra rooms – If your VA loan financed home has enough space, you can rent out extra bedrooms, a basement apartment, or guest house. You still must live there and claim it as your primary residence.

Duplexes or small multi-families – VA loans can be used to purchase duplexes, triplexes, or fourplexes. You would live in one unit and rent the others.

So essentially if you live in the home, you can use VA financing and rent part of it out for investment income. You’ll maintain full eligibility by meeting the primary residence requirement.

VA Entitlement and Using Your Benefit Multiple Times

A major plus with VA loans is that you can use the benefit multiple times, to purchase additional investment properties. This is different than most other loan programs which limit you to one purchase.

Your maximum benefit is known as your VA entitlement, which guarantees the lender a certain amount if you were to default on the loan. For loans under $144,000, the entitlement guarantee is 25% of the loan amount.

Each time you use your VA benefit, it lowers your remaining entitlement. However, there are two ways to restore your full entitlement and purchase additional properties:

Fully repay your existing loan – If you pay off your VA loan on your current home, your full entitlement is restored so you can purchase another property.

Substitution of entitlement – If selling your current home to a buyer who assumes your VA loan, their eligibility substitutes yours and restores your full benefit.

Utilizing these strategies can allow you to purchase multiple investment properties over time using the leverage of VA financing.

Occupancy and Living Requirements

Since VA loans require the home to be your primary residence, there are some occupancy rules you must follow:

• You must physically move into the home within 60 days of closing
• You are not required to live in the home 365 days per year, but it must be your primary residence
• Active duty service members have more flexibility to rent out the home immediately after purchase in certain circumstances

Failure to comply with these occupancy rules could put your VA loan at risk. Work closely with your lender to ensure you fully understand the requirements.

How to Use a VA Loan for an Investment Property

If you’ve determined that a VA loan is right for your real estate investment plans, here is a quick step-by-step process:

1. Research lenders that offer VA loans and get pre-approved – This lets you know your pricing and gives you buying power when making offers.

2. Shop for a property that meets VA requirements – It must be a 1-4 unit primary residence in an eligible location.

3. Make an offer and enter into a purchase agreement on an investment property.

4. Complete the full VA loan application and underwriting process. This includes providing financial documentation and getting the home appraised.

5. Close on your financing and take possession of the property. Be sure to move into the home within 60 days.

6. Begin renting out any extra space allowable under VA guidelines. Or purchase additional properties over time using your restoration of entitlement strategies.

The key is working with a lender familiar with VA loans. They can guide you through the process and ensure your investment property purchase goes smoothly.

Alternatives if You Don’t Qualify for VA Loans

If you don’t meet VA loan requirements, here are some alternative financing options to consider for investment properties:

FHA loans – Allow 3.5% down payments even on multi-family properties. Credit and income standards are fairly flexible.

USDA loans – Offer zero down payments in designated rural areas. Can be used to purchase duplexes or larger multi-families.

Conventional loans – Typically require higher down payments and solid credit. But offer the most flexibility for pure investment properties that won’t be owner-occupied.

Hard money loans – Asset-based financing from private lenders at higher rates. No income documentation required.

Private lenders – Individuals or groups providing financing for real estate investments. Requirements vary greatly.

Partners/crowdfunding – Pool money with others to diversify and fund down payments or purchases.

With the right financing strategy, almost any real estate investor can build a portfolio over time. VA loans provide a major advantage through their zero down payment benefit. Just be sure to fully understand the guidelines around using a VA loan for an investment property before moving forward.