Using VA Loans for Investment Property: A Complete Guide

VA loans are a great option for active duty military, veterans, and eligible surviving spouses looking to purchase a home These loans are backed by the Department of Veterans Affairs and offer perks like no down payment and competitive interest rates

But can you use a VA loan to purchase an investment property? That’s a common question many VA borrowers have. The quick answer is yes, you can use a VA loan for an investment property in certain situations. In this complete guide, we’ll cover everything you need to know about using your VA home loan benefit to invest in real estate.

Can You Use a VA Loan for an Investment Property?

The VA home loan program is designed to help eligible borrowers become homeowners by purchasing a primary residence. So most of the time, VA loans need to be used to buy a home you will live in as your main home.

However, there are some scenarios where you can use a VA-backed loan to invest in a rental property or multifamily home. Here are the two main ways eligible borrowers can utilize their VA loan for an investment

• Rent out part of your primary residence. If your primary residence has a guest house, basement apartment, or enough bedrooms to rent out, you can use a VA loan to buy or refinance the property. As long as you live there, renting out part of the home is allowed.

• Purchase a 2-4 unit multifamily property. VA loans can be used to buy duplexes, triplexes, and 4-plexes. However, you must occupy one of the units as your primary home.

The key is at least one unit must be your full-time residence. VA loans cannot be used solely for investment purposes to purchase rentals you won’t live in. But there are still investment opportunities through smart use of your VA benefit.

VA Loan Occupancy and Property Requirements

When using a VA-backed loan to invest in real estate, there are occupancy requirements and property specifications borrowers need to be aware of. Here are the key guidelines:

• Occupy within 60 days. Any property purchased with a VA loan must become your primary residence within 60 days of closing. For active duty VA borrowers, a dependent can move in on your behalf to meet the occupancy requirement if you have a duty station assignment.

• One unit must be your primary home. As mentioned above, at least one unit of a multifamily property needs to be your full-time residence when using a VA loan. These loans cannot be used to only buy investment properties.

• Limit of 4 units. The maximum number of units allowed for a VA purchase loan is 4. This includes single family homes, townhouses, condos, duplexes, triplexes, and 4-plexes.

• Mixed-use property limits. VA loans can be used to buy mixed-use residential/commercial buildings. However, the commercial space cannot exceed 25% of the total floor area. There is also a 4 unit limit on mixed-use properties.

By following these guidelines, eligible borrowers can tap into their VA benefit to invest in real estate while still meeting the program’s occupancy rules.

House Hacking with a VA Loan

House hacking with a VA loan has become a popular real estate investment strategy for military buyers. The idea is to use your VA home loan benefit to purchase a 2-4 unit multifamily property. You live in one unit as your primary home and rent out the other units.

This approach allows you to become a homeowner and landlord while having your tenants help pay the mortgage. Here are some tips for house hacking successfully with a VA loan:

• Shop below your approval amount. Don’t max out your loan amount on the multifamily purchase. Leave breathing room in your budget for repairs, vacancies, and property management.

• Look for move-in ready properties. Tenants will pay more for updated, renovated units. Avoid fixer-uppers to reduce headaches and costs.

• Screen tenants thoroughly. Dig into their background, income, credit, and references to find qualified, reliable renters.

• Hire a property manager. Especially for your first investment property, let an experienced manager handle tenant screening, rent collection, maintenance, and more.

Overall, house hacking can be a great way for eligible military buyers to enter the world of real estate investing. Just be sure to follow VA guidelines and borrow well within your means.

Calculating Rental Income for VA Loan Qualification

When applying for a VA loan to purchase a multifamily investment property, projected rental income can help you qualify. However, most lenders have strict requirements around counting potential rent from units you plan to lease out.

Here are some things to know about rental income and VA loan approval:

• 2 year history generally required. Most lenders want to see a 2 year history of managing rental properties before they will consider future rental income for your VA loan application.

• Existing leases needed. For any units you want rental income counted from, an executed lease is usually required prior to closing on the VA loan.

• 75% of fair market rent. VA lenders typically only count 75% of the appraiser’s estimated fair market rent for vacant units when calculating your income.

• Reserves required. Expect to have 6-12 months of mortgage payments (PITI) in cash reserves when purchasing a VA investment property and counting projected rental income.

The requirements around counting rental income vary by lender. But in general, you need a track record and existing leases to include projected rent from your future tenants.

Alternatives for Real Estate Investing with a VA Loan

If you don’t meet rental income requirements for a VA investment property loan, here are a couple alternative routes to consider:

• House hack later. You can always refinance your current VA loan into a conventional, FHA, or non-QM loan that may have more flexible rental income policies. Then house hack your primary residence.

• Use your VA benefit later. Purchase your investment property first with a conventional loan. Then when ready to buy a home to live in, use your VA entitlement for your primary residence.

While rental income can be counted for VA approval in limited cases, there are other paths to invest in real estate long-term using your VA benefit.

VA Entitlement and Loan Limits for Investment Properties

When applying for a VA loan to purchase a multifamily investment property, there are some key VA entitlement factors to consider:

• Basic and bonus entitlement. For the first VA loan up to $144,000, the basic entitlement guarantees 25% or a max of $36,000. Above $144k, bonus entitlement provides a 25% guarantee of the loan amount exceeding $144k.

• County loan limits. If you’ve used your VA benefit before, the county loan limit where the property is located comes into play. Your remaining entitlement will only cover 25% of the difference between your county’s limit and your previously used entitlement amount.

• VA funding fee. All VA loans require a funding fee, ranging from 1.4% to 3.6% of the loan amount. It can be financed into the loan or paid upfront at closing.

• Full entitlement restored. Your full VA entitlement will only be restored if the buyer of your current VA property substitutes their VA eligibility and pays off your loan.

Bottom line – work closely with your lender to optimize your entitlement when purchasing a VA investment property.

Can You Have Two VA Loans at Once?

In certain situations, yes – you can hold two VA loans at the same time. The most common scenario is when eligible borrowers have orders for a permanent change of station (PCS) move.

Here are some things to keep in mind about having two active VA loans simultaneously:

• Two residences. You must be able to prove both properties will be owner-occupied primary residences – like a PCS situation where your family will live at one home while you move for duty station orders.

• Lender approval. The lender must approve you for both mortgage payments and the loan amounts must fit within your remaining VA entitlement.

• Occupancy timeline. You will likely have to move into the second VA home within a certain timeframe, like 60-90 days.

Outside of special circumstances like a PCS, most lenders will want your current VA loan to be paid off before approving a second VA loan. But there are exceptions when planned properly.

Buying a VA Foreclosure Investment Property

Purchasing a VA foreclosure property can be a way to invest using your loan benefit. These are homes previously financed with a VA loan that went into foreclosure. Here are some quick pros and cons of buying a VA foreclosure as an investment:

Pros

• Properties often sell below market value.

• No required repairs to meet VA minimum property standards.

• Opportunity to build equity through repairs and appreciation.

Cons

• Can’t be used solely as a rental property – must reside in one unit.

• Short financing contingency periods to make a VA foreclosure offer.

• Properties may require extensive repairs and renovation.

If you plan to live in one unit, VA foreclosures can be smart investments. Just be realistic about repair costs and don’t overpay.

The Bottom Line: