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

Department of Veterans Affairs (VA) loans are an attractive mortgage financing option for qualifying home buyers. If youâre an active-duty military member, a veteran or a surviving spouse, you can enjoy lower mortgage rates, limited closing costs and little to no down payment if you meet certain eligibility requirements for a VA loan.

However, if youâre wondering whether you can use a VA loan to purchase an investment property, VA occupancy requirements may present an obstacle. VA loans are stricter than other types of home loans regarding occupancy requirements.

For example, most VA lenders expect borrowers to use the property as their primary residence for at least 12 months after making the investment purchase. Thatâs, of course, likely easier said than done if you have a primary residence elsewhere and need to stay there.

Even so, it may still be possible to generate rental income or get a return on your investment when you finance with a VA mortgage.

Purchasing an investment property can be an excellent way to build long-term wealth. However, coming up with the down payment for a rental property or vacation home can be a major obstacle for many potential real estate investors This is where VA loans come in handy

VA loans are backed by the Department of Veterans Affairs and aimed at helping active-duty military veterans, and surviving spouses finance a home. These loans offer significant benefits like no down payment and limited closing costs.

But can you use a VA loan for an investment property? Let’s take an in-depth look at the guidelines and loopholes surrounding VA occupancy requirements

VA Loan Occupancy Rules

The main caveat with VA loans is that you must occupy the home as your primary residence. The VA has strict occupancy guidelines requiring borrowers to move into the property within 60 days of closing and live there for at least one year.

So at face value, it appears you can’t use a VA loan to purchase a dedicated rental property or vacation home that you won’t personally occupy. However, there are a few exceptions that open the door to using your VA benefits on an investment property.

Exceptions That Allow Using A VA Loan As An Investor

While the VA has stringent occupancy requirements, their definition of a “primary residence” is somewhat flexible. Here are two scenarios where you can use your VA home loan perks to invest in real estate:

Rent Out Part of Your Primary Residence

The VA only requires that you live in the home full-time. There are no restrictions on renting out spare rooms, a guest house, or basement apartment to generate rental income.

As long as you occupy one part of the property, you can use a VA loan to purchase a single-family home or condo with extra space to rent.

Purchase a Multi-Unit Property

VA guidelines allow borrowers to purchase a 2- to 4-unit building such as a duplex, triplex, or fourplex with one VA loan.

You must live in one of the units as your primary residence for at least one year. After that, you can convert the entire property into an investment and rent out all units.

Refinancing Options for Investment Properties

What if you already have a VA loan on an existing property that you want to rent out? You have a couple of refinancing options so you can keep your current home as a rental and purchase another primary residence:

VA Streamline Refinance – Also called an IRRRL. You can refinance your current VA loan into a streamline VA loan with lower interest rate and/or payments. This removes the occupancy requirement on your current home.
Cash-Out Refinance – Refinance your VA loan into a conventional loan. This eliminates VA occupancy rules and restores your full VA entitlement so you can purchase a new primary residence.

In both cases, you get to keep your current property as a long-term rental. Just be mindful of closing costs when refinancing.

VA Loan Entitlements

When using a VA loan for real estate investing, it helps to understand VA entitlements. This refers to the amount the VA can guarantee your lender in case you default. There are two types:

Full entitlement – You get a 25% guarantee on any loan amount if you’ve never used VA benefits or restored your full entitlement. No cap on how much you can borrow.

Partial entitlement – You have a current VA loan balance so your remaining entitlement is less than 25%. You may need a down payment on the second home to cover what VA doesn’t guarantee.

Tips for Using a VA Loan to Invest

If you’ve decided to move forward with using your VA benefits to invest, keep these tips in mind:

Get pre-approved early so you know your budget for purchasing a property with rental potential
Consider house-hacking a duplex or triplex so you can live in one unit rent-free and generate income from the others
Occupy the home for at least one year before converting to a rental property or vacation rental
Consider refinancing options if you want to rent out an existing VA-funded property and buy another primary residence
Understand your entitlements so you know if you need a down payment on a second VA loan

While VA guidelines limit using these loans strictly for investment properties, savvy real estate investors can leverage their VA benefits to purchase a primary residence with income potential.

can you use a va loan for an investment property

Rent Your Home After 12 Months

If youâve lived in your home for a year â or youâve been assigned to a new duty station before the 12-month benchmark â you can rent out your VA loan-financed house. Your tenant wonât need to be a service member or veteran who qualifies for a VA loan.

However, keep in mind that you wonât be able to purchase another home with a VA loan until youâve restored your entitlements from the first loan.

Rent Out A Unit In Your Single-Family Home

While your property must serve as your primary residence, youâre allowed to rent out one or more rooms in your single-family home. So, if you want to finance with a VA home loan and generate some rental income, consider purchasing a home with additional rooms or space.

You can also buy a property with a detached apartment on the lot or a garage thatâs been converted into a living space if you prefer more separation from your potential tenants. You may also consider turning that extra space into a vacation rental through Airbnb or Vrbo.

VA Loan Secrets: What Veterans MUST Know about Using Multiple VA Loans (updated 2023)

FAQ

Can you use a VA as an investment property?

With a VA loan, the VA backs your loan up to a certain percentage. As a result, the lender is protected, and you don’t have to pay as much for a home. Keep in mind that if you use a VA loan to purchase an investment property, you must treat that property as your primary residence.

Can you turn a VA home into an investment property?

But if that’s on your radar, VA borrowers can use their benefit to purchase a home, live in it for a time, and then rent it out as an investment property. While many choose to reside in their purchased homes for extended periods, others see the opportunity for additional income and expanded property ownership.

Can a VA loan be assumed as an investment property?

While the VA loan program offers more relaxed qualifications for borrowing than conventional loans, VA loan occupancy requirements specify – as already noted – that you must use the home or property you’re purchasing as your primary residence rather than a rental property, vacation home or other investment property.

What property Cannot be financed with a VA loan?

You can’t purchase or build a vacation home or a purely investment property with a VA loan. New construction is possible, but veterans can’t simply purchase a plot of land with the intent to build a home some day. You also can’t use this as a business loan. Again, the focus is on primary residences.