Why Can’t I Buy a Rental Property With My VA Loan?
There are two things we need to discuss in order to properly cover this question. First, we need to clarify that you actually can buy a rental property with a VA loan, and then we need to explain why the VA doesn’t allow many types of rental properties to be purchased with a VA loan. It isn’t because the VA doesn’t want you to be financially successful or have options, it has to do with the purpose of the VA loan program. We’ll go over all that in this article.
You Can Buy a Rental Property With a VA Loan
So you actually can buy a rental property with a VA loan, but there are some conditions. The VA will not allow you to buy a rental property with more than four residential units, and the borrower is required to occupy one of the units as their primary residence. You can also purchase a property with a commercial unit, which you are allowed to use for your own personal business or you can rent out to someone else to use. So duplexes and quadplexes are free game as long as you can qualify for the loan amount. The VA is not opposed to you making some money on the side with rent payments, but they also want to make sure that the purpose of the VA loan program is being fulfilled. Sadly, you will not be able to use your VA loan benefits to purchase a big apartment complex. But honestly, if you were relying on your VA loan benefits in order to make that a feasible decision, you probably aren’t in a great position to be buying that rental property in the first place.
The Purpose of the VA Loan Program
The purpose of the VA loan program is to help veterans find suitable housing at better terms than they could receive elsewhere. It’s one of the ways the VA works to make sure that veterans aren’t at a disadvantage when they leave the military. Not only that, but the VA program is largely taxpayer-funded. Most taxpayers can get behind the idea of helping a low-income veteran get a house, but those same taxpayers would be less willing to donate their hard-earned to help a veteran become a landlord making six figures a year. So not only does using VA loan benefits to purchase a rental property go against the purpose of the VA loan program, but it also brings up some issues on the ethics of using taxpayer money for personal gain. When you look at it from this perspective, it becomes pretty easy to see why the VA is so prickly about using VA loans for rental properties.
So you can’t use the VA loan program to purchase a big rental property. However, nothing is stopping you from using a conventional loan to do so. You can have your home financed with a VA loan and use a conventional loan to finance your purchase of a rental property.
Other Options You Have
An interesting facet of the VA loan program is that while there is an occupancy requirement that states the borrower must be intending to occupy the home as his or her primary residence, there is no requirement on how long the borrower must occupy the house. Also, it is not unheard of for a home purchase to not use up all of a veteran’s VA loan entitlement. Therefore, it’s very possible to purchase more than one property with a VA loan and have both loans going concurrently. As long as you’re willing to move into the new property at the time of loan closing, you could possibly have two quadplexes financed with a VA loan at the same time. While this may not be possible due to how expensive a quadplex is compared to a normal home in the same area, it’s something you may want to look into if you have your heart set on making income from rental properties. This may be even more possible if you are able to find a foreclosed property that fits your needs. Your options do not begin and end with the VA loan program.