Can a VA Loan be Used for an Investment Property? A Comprehensive Guide

VA loans are an incredibly attractive financing option for eligible military servicemembers and veterans looking to purchase a home. These government-backed loans require no down payment, have competitive interest rates, and allow repeat use of the benefit.

But can you use a VA loan for an investment property? This is a common question among those eligible for VA financing

The short answer is no, VA loans cannot be used to purchase a traditional investment property or vacation home that you do not occupy. However, there are some ways you may be able to use a VA loan to purchase a property that you live in while also earning rental income.

In this comprehensive guide we’ll cover

• VA loan occupancy requirements
• Using a VA loan for a primary residence with rental income
• VA entitlement and loan limits
• Using a VA loan if you already have one
• Alternative loan options

Let’s dive in!

VA Loan Occupancy Requirements

The key to understanding if you can use a VA loan for an investment property lies in the occupancy requirements.

The VA mandates that any home purchased with a VA-backed loan must be used as your primary residence. This means:

• You must physically occupy the home within 60 days of closing
• You must live in the home for at least 12 months
• You cannot use the property as a vacation home or short-term rental

These occupancy rules aim to prevent misuse of the VA home loan benefit. The financing is intended to help eligible borrowers become homeowners, not real estate investors.

Using a VA Loan With Rental Income

Given the occupancy requirements, a VA loan cannot be used to purchase a traditional rental property that you do not live in.

However, there are some scenarios where you can use a VA loan and still earn rental income:

• Renting out spare rooms in your primary residence – If your home has an extra bedroom, basement apartment, or guest house, you can rent these spaces out while living in the home.

• Purchasing a 2-4 unit multi-family property – VA loans can be used to buy a duplex, triplex, or 4-plex as long as you occupy one of the units. You can then rent out the other unit(s).

In these situations, you are still using the home as your primary residence while also generating rental income. This is allowed under VA guidelines.

Just remember you must physically live in the home for at least 12 months and cannot purchase the property strictly as an investment. Carefully review the VA occupancy rules before pursuing this strategy.

Understanding Your VA Entitlement

When using a VA loan, it is important to understand your VA entitlement. This refers to the amount of your loan that the VA guarantees.

For first-time VA loan borrowers, the basic entitlement is 25% of the loan amount, up to a maximum of $144,000.

So if you borrow $144,000 or less, your full entitlement would be $36,000. If you borrow more than $144,000, you get 25% of the higher loan amount.

Each time you use your VA loan benefit, your available entitlement decreases. However, it can be fully restored once you pay off the loan or another eligible veteran assumes the loan.

Review your Certificate of Eligibility to determine your current entitlement before pursuing an additional VA loan.

VA Loan Limits

In addition to your entitlement, VA loans are subject to county loan limits based on the property’s location.

For first-time VA loan borrowers with full entitlement, loan limits are rarely an issue. But they can come into play if you’ve previously used your VA benefit.

In this case, the VA will only guarantee 25% of the county loan limit minus any entitlement already used. Loan limits also apply if you are seeking to borrow above your available entitlement.

So in certain cases, loan limits may restrict how much you are able to borrow with a VA loan for an investment property. Be sure to discuss this with your lender.

Using a VA Loan if You Already Have One

Another common question is whether you can get a second VA loan if you already have one.

The good news is that in most cases you can! Your VA entitlement can be reused as long as you qualify and have sufficient remaining benefit available.

However, there are a few things to keep in mind:

• You must fully repay your existing VA loan or have another eligible veteran assume it to restore your entitlement
• You can have two VA loans at once only in special circumstances (e.g. PCS orders)
• Loan limits may come into play depending on your specific situation

Again, be sure to verify your current entitlement and loan limits when pursuing an additional VA loan.

Alternative Loan Options

If you do not qualify for a VA loan or want to purchase a traditional investment property, there are other financing options to consider:

• FHA loans – Require only 3.5% down and can be used to purchase 2-4 unit properties with rental income.

• Conventional loans – Allow you to purchase any investment property, but typically require 10-20% down.

• Portfolio loans – Offered by local banks and credit unions, these loans may offer more flexible guidelines.

• Hard money loans – Asset-based financing from private lenders at higher interest rates.

• Private money loans – Loans from individual investors you know, often on more favorable terms than hard money.

Each loan type has its own pros, cons, rates, fees, and eligibility guidelines. Shop around and compare all your options if considering an investment property!

The Bottom Line

While VA loans cannot be used to purchase traditional investment properties, there are some cases where you can tap into your VA benefit and generate rental income:

• Renting out extra space in a primary residence home
• Buying a small multi-family property and occupying one unit

Just remember you must abide by all VA occupancy rules, thoroughly understand your available entitlement and loan limits, and compare all financing options for investment properties.