Rental Property VA Loan

 

Why Can’t I Buy a Rental Property With My VA Loan?

VA Rental Home

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.Buying a VA Rental Home

 

FAQ; Rental Property

Can I Purchase a Rental Property With a VA Loan?

 

This is one of those rare questions that you get to pick your answer. You can choose “Yes” with a “but”, or you can choose “No” with an “unless”. For those of you who like finding the middle ground, you can also choose “sort of”. If you’re wondering if you can use your VA loan benefits to build a real-estate empire from the ground up, you’re probably going to be disappointed. But, if you’re just hoping to get some extra income and eventually build from there, you may be in luck. The VA has very specific rules about using VA loan benefits to purchase rental properties, and we’ll cover those here so you know what you can and can’t do.

VA Rental Property

The VA has a strict occupancy requirement in place to help ensure that the VA loan program is used for its intended purpose. When getting a new purchase VA loan, you must certify that you intend to occupy the property as your primary residence. At face value, this seems to put paid to the idea that you can purchase a rental property. After all, how can you rent it out if you’re living in it? While that is certainly true of a single-unit property, what about a duplex? What about an apartment building? This is where the “but” or the “unless” comes in. The VA allows a borrower to purchase a multi-unit property so long as it does not have more than four residential units and one commercial unit. The catch? The borrower has to be living in one of the four residential units.

 

So the property still must be used as the borrower’s primary residence, but the VA will permit the borrower to rent out up to three more residential units and a commercial unit. As you can see, if your goal is using your VA loans to make a living off of rental income, you’re probably going to be disappointed. However, there are many scenarios where you might find great benefit in having additional units on your property to rent out. Even better, you can find a property with a commercial unit attached to the residential units. You can use the commercial unit for your own business, or rent it out to someone else. Commercial units often rent for more than their comparably-sized residential counterparts. In this way, the VA has found a good balance between meeting the varied needs of the veterans they serve, but also maintaining the integrity of the purpose of the VA loan program. The VA loan program is not intended to give veterans unfair advantage in the real-estate market; it is intended to help veterans find suitable housing at better terms than they could otherwise qualify for.

 

For borrowers who are looking to buy a new house, but would like to rent out their existing house rather than sell it, you can use a VA loan to do just that. The VA does not have any requirements on how long after purchasing the home you must continue to live in it. The VA understands that you may live in a home for a few years, then not wish to sell it when you move to another home, and so long as you have sufficient entitlement, you can do exactly that. For the most part, the only thing that will prevent you from doing so will be how much available entitlement you have, which a VA-approved loan officer can help you determine.

 

In summary, you can use a VA loan to purchase a property with up to four residential units and one commercial unit, but you must be occupying one of the units as your primary residence. However, as long as you originally purchased the property to be your primary residence (which you would have had to do in order to get approved for a VA loan) you can move out and use a different property as your home, while still keeping the original property financed with a VA loan. Be sure to check with a VA-approved loan officer to make sure that you have sufficient entitlement available in order to purchase a second home with your VA loan benefits.

 

Renting out a VA Home to Buy a New Home

Can a Veteran Home Owner Rent out a His/Her Current Home and Buy a New Home With a New VA Loan?

Using a VA loan to purchase your home is one of the smartest things you can do as a home buyer.  I have said time and time again that anyone that is entitled to a VA home loan and does not use it has got to be very uneducated when it comes to understanding his/her VA benefits.

One place where Veterans have tried and keep trying to use their VA benefits and are struggling, is when it comes to buying a rental or investment property or when the veteran is not able to sell his/her current home and wants to rent it out in the meantime and then go buy a new home.

Perhaps the most constant guideline that all lenders have when it comes to VA loans, is that the home most be intended as your primary residence and that you can only have one VA loan outstanding at a time per veteran.  The reason this VA loan guideline is pretty standard for all VA lenders is because it is an actual VA program guideline issued by the Department of Veterans Affairs.

I will attempt to layout some examples in the following table:

Veteran’s Question About the VA Loan and it’s Usage

Simple Answer

Suggestions for Veteran

Can I buy a home with a VA loan and rent it out to someone? NO If you are buying a multi-unit property like a duplex or 4-plex and you are going to occupy one of the units then you could essentially buy a home with a VA loan and rent it out
Can I rent my current home that has a VA loan on it to someone else that is a NON-Veteran? Yes You will not be able to buy a new home with a VA loan until you refinance the home that is now being rented into a loan that is NON VA.
Can I have more than one VA loan at a time? NO Some exceptions to this rule are possible.  If two veterans are married and one veteran had a VA loan on a home prior to getting married, then the two try to buy a home together once married; this could happen if the veteran that has not used his/her VA loan before is able to qualify.
Can a Veteran use a VA loan more than once? Yes It is possible to have unlimited access to your VA home loan eligibility. As long as you are able to sell your current home with a VA loan on it, then you can always buy again with a new VA loan.

 

There are always cases or questions that may not have been discussed in this post, and I hope you find the little bit of information I have shared useful. Should you need more details or have a specific question, I certainly hope you can find it on LowVARates.com or that you will feel free to submit your question to our Contact Us page.

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