Can You Use a VA Loan To Buy Rental Property?

Disclaimer: PropStream does not offer investing or legal advice or make profit promises. This article is for educational purposes only. We recommend consulting financial and legal professionals and/or doing your due diligence before financing a rental property with a VA loan.

For eligible active service members, veterans, and their surviving spouses, VA loans have long been an attractive home financing option. They don’t require a down payment or mortgage insurance and typically have lower interest rates than conventional mortgages.

But can you use VA loans to buy rental property? The answer is complicated. Read on to learn when you may be able to finance a rental property with a VA loan, when you can’t, and more.

What Is a VA Loan?

A VA loan is a mortgage issued or backed by the U.S. Department of Veterans Affairs (VA). Most are issued by a private lender, while the VA guarantees a portion of the loan. This reduces the lender’s risk, allowing them to offer more competitive loan terms.

Furthermore, the VA doesn’t require a down payment (though the lender might), nor does it require private mortgage insurance (a typical requirement when putting down less than 20%). Plus, lender origination fees are capped at 1%.

What’s the catch? To qualify for a VA loan, you must be an eligible veteran, active service member, or surviving spouse of a veteran. Furthermore, you must pay a funding fee of up to 2.15% of the loan if it’s your first VA loan (or up to 3.3% if it’s not your first VA loan).

Finally, the VA also requires you to move into the property within 60 days of closing (with some exceptions), and most VA lenders require you to live in the property for at least one year.

Can You Use a VA Loan for Investment Properties?

Since VA loans are meant for primary residences only, using them to buy rental property can be tricky. However, it’s not impossible.

For example, a VA loan doesn’t prohibit house hacking. In other words, you could live in the property but still rent out part of it (e.g., a room or an ADU (accessory dwelling unit). This can be a great way to break into rental investing while benefiting from owner-occupied financing terms.

Alternatively, you could buy a multifamily property with up to four units as long as you live in one of them. This is another form of house hacking that allows for more space and privacy.

Otherwise, the only ways to use a VA loan for a rental property are to:

• Live in the home for a year and then rent it out. At that point, you’ll have met most VA lenders’ occupancy requirements.
• Refinance an existing VA loan with an Interest Rate Reduction Refinance Loan (IRRRL). This could increase your remaining VA loan entitlement (the total loan amount the VA is willing to insure you against), allowing you to take out a second VA loan on a new primary residence and turn the first property into a rental.
• Refinance to a conventional loan that doesn’t require occupancy later.

Properties Allowed and Not Allowed Under a VA Loan

Here’s a breakdown of what property types are allowed under a VA loan and which aren’t:

Using Expected Rental Income to Qualify for a VA Loan

If you intend to house hack with a VA loan, you may be able to count the future rental income toward your overall income when qualifying for the loan.

For example, let’s say you make $5,000 per month, and the rental income from the property you want to buy is $1,000 per month. The VA will let you count 75% of the $1,000 rental income toward your effective income for underwriting purposes, assuming it is based on verified prior rent collected on the units or an appraiser’s opinion of the property’s fair monthly rent. This would result in a total effective income of $5,750, which could help you qualify for a larger loan.

Keep in mind, however, that for expected rental income to be considered, you must show that you have cash reserves equaling at least 6 months of mortgage payments plus prior experience managing rental units or other background involving both property maintenance and rentals.

5 Tips for Rental Investors Interested in VA Loans

Now that you understand how to use a VA loan to buy rental property, here are some final tips:

1. Build Rental Management Experience Early

Since the VA requires proof of rental or property management experience from borrowers who want to finance a rental, work on fulfilling this requirement now. For example, you could manage a rental informally for a family member or friend, or take a certified landlord training course.

2. Understand Your VA Loan Entitlement

When you get a certificate of eligibility (COE) for a VA loan, it shows your entitlement (the amount the VA will guarantee on a mortgage). Understanding how much of your entitlement you’ve used and what remains can help you determine whether buying another property with a VA loan is possible.

3. Plan Your Exit Strategy

If you want to turn your VA loan property into a rental, make sure you’ve met the occupancy requirement (typically 12 months) before moving out. Keep detailed records of your residency so that you have proof to show lenders.

4. Check Zoning and HOA Rules

Some neighborhoods and HOAs may prohibit or significantly restrict rentals. Before getting a VA loan to buy a property you intend to rent out, double-check local regulations.

5. Work With a VA-Savvy Real Estate Agent and Lender

Not all agents or lenders are familiar with the nuances of VA loans for multifamily or rental scenarios. As a result, try to work with professionals with a track record in this niche to avoid unnecessary loan delays or denials.

Final Takeaway: VA Loans Can Sometimes Be Used for Rentals

While VA loans aren’t designed for rental properties, they can be used strategically to begin building a real estate portfolio—if the occupancy rules are followed. Typically, this means house hacking, but it can also mean converting the property into a rental after living in it for a year.

Start Finding Properties Eligible for House-Hacking—PropStream It!

If you need help finding the best property for your next rental (e.g., multi-family properties), PropStream can help. Our database of over 160 million properties and 165+ search filters makes it easy to pinpoint houses in your market that fit your budget and other investment criteria.