Welcome to our definitive guide on VA loan rental property. If you’re a veteran with eligibility for a VA loan, you might be wondering if you can use this benefit to buy an investment property, such as a rental home or multi-unit apartment building.
The good news is that VA loans can be used for a variety of purposes. However, there are some important details to understand if you’re interested in buying rental property with a VA loan. This guide will cover everything you need to know, from the basics of VA loans to the specific requirements for rental properties.
👉 Understanding VA Loans
Before we dive into the specifics of VA loan rental property, it’s important to have a solid understanding of what a VA loan is and how it works. Here’s a brief overview:
What is a VA Loan?
A VA loan is a type of mortgage available to veterans and active duty military members. VA loans are backed by the U.S. Department of Veterans Affairs (VA), which means they have certain benefits and requirements that are unique from other types of home loans.
Benefits of VA Loans
One of the biggest advantages of a VA loan is that they don’t require a down payment, which can make it easier for veterans to become homeowners. Additionally, VA loans often have lower interest rates than conventional mortgages, which can save borrowers money over the life of the loan.
Other benefits of VA loans include:
- No private mortgage insurance (PMI) required
- Flexible credit requirements
- No prepayment penalties
- Assumable by another borrower, potentially making it easier to sell the home
Requirements for VA Loans
In order to be eligible for a VA loan, you must meet certain requirements. Here are some of the basic qualifications:
- You must be a veteran or active duty service member, or the spouse of one
- You must have a Certificate of Eligibility (COE) from the VA
- You must meet certain credit and income requirements
VA loans can be used to buy a primary residence, which is the home where you’ll live as your main residence. However, as we’ll discuss in the next section, VA loans can also be used to buy rental property under certain circumstances.
🏠 Using VA Loans for Rental Property
One of the most common questions veterans have about VA loans is whether they can use them to buy rental property. The short answer is yes, it’s possible to use a VA loan to buy a rental home or multi-unit property – but there are some important requirements to keep in mind.
Can You Use a VA Loan to Buy Rental Property?
Yes, you can use a VA loan to buy rental property – but there are some limitations. Here are the basic requirements:
- You must occupy one of the units as your primary residence
- The property must have no more than four units
- You must meet certain income requirements
- You must have a sufficient amount of residual income
The requirement to occupy one of the units as your primary residence is a key factor in using a VA loan for rental property. Essentially, this means that you can’t use a VA loan to buy a property strictly for investment purposes. However, if you plan to live in one of the units yourself, you can use a VA loan to help finance the purchase.
Residual Income Requirements for VA Loan Rental Property
One unique aspect of using a VA loan for rental property is that the borrower must have a certain amount of residual income. Residual income is the amount of money that’s left over each month after you pay your bills and other expenses.
The VA has established specific residual income requirements for borrowers who plan to use VA loans for rental property. Generally, the more units a property has, the higher the residual income requirements will be.
For example, as of 2021, the VA’s residual income requirements for a borrower with a family of four who is buying a property with three or four units are as follows:
Number of Units
Residual Income Requirement
It’s important to note that these are just general guidelines, and residual income requirements can vary depending on a number of factors. Your lender will be able to provide more specific information based on your individual situation.
Other Considerations for VA Loan Rental Property
When using a VA loan for rental property, there are some additional factors to keep in mind:
- The property must meet certain minimum property requirements (MPRs) set by the VA
- You will need to provide documentation of projected rental income and expenses
- You may need to provide a larger down payment if the property doesn’t meet certain cash flow requirements
- You may need to pay a higher funding fee
Again, your lender will be able to provide more specific details about these requirements based on your individual situation.
🤔 Frequently Asked Questions About VA Loan Rental Property
1. Can I use a VA loan to buy a vacation rental property?
No, VA loans can only be used to buy a primary residence or rental property where the borrower plans to occupy one of the units as their primary residence.
2. Can I use a VA loan to buy a duplex and rent out both units?
Yes, as long as the borrower occupies one of the units as their primary residence.
3. Can I use rental income to help qualify for a VA loan?
Yes, you can include projected rental income in your application for a VA loan to buy rental property. However, you’ll need to provide documentation to support your income projections.
4. Can I use a VA loan to buy a mobile home park?
It’s possible, but there are additional requirements and restrictions for using VA loans to buy manufactured or mobile homes. Contact your lender for more information.
5. Is there a limit to how many VA loans I can have at once?
Yes, in most cases, you can only have one VA loan at a time. However, there are some exceptions for borrowers who have paid off their previous VA loan or who have had their previous VA loan assumed by another veteran.
6. What if I don’t meet the residual income requirements for VA loan rental property?
If you don’t meet the VA’s residual income requirements, your lender may require you to have a larger down payment, a higher credit score, or additional cash reserves. Speak with your lender to explore your options.
7. Do I need to live in the rental property permanently in order to use a VA loan?
No, the VA doesn’t require you to live in the rental property permanently. However, you must plan to occupy one of the units as your primary residence when you first purchase the property.
8. Can I use a VA loan to buy a commercial property?
No, VA loans can only be used to buy residential properties. If you’re interested in buying commercial property, you’ll need to explore other funding options.
9. Can I use a VA loan to buy rental property in another state?
Yes, you can use a VA loan to buy rental property in another state as long as you meet all of the requirements for using a VA loan for rental property.
10. Can I use a VA loan to buy rental property with more than four units?
No, VA loans can only be used to buy rental property with four units or fewer.
11. Can I use a VA loan to buy an apartment building?
Yes, as long as the apartment building has four units or fewer and the borrower plans to occupy one of the units as their primary residence.
12. What is the VA funding fee?
The VA funding fee is a one-time fee charged by the VA to help fund the VA loan program. The fee can vary depending on factors such as the borrower’s military status and the amount of the loan.
13. How can I find out if I’m eligible for a VA loan?
To determine if you’re eligible for a VA loan, you’ll need to obtain a Certificate of Eligibility (COE) from the VA. Your lender can help you with this process.
If you’re a veteran interested in buying rental property, a VA loan can be a great option. However, it’s important to understand the specific requirements and limitations of using a VA loan for rental property. By following the guidelines we’ve outlined in this guide, you’ll be well on your way to making a smart investment in rental property with the help of a VA loan.
If you have any questions or would like more information, contact your lender or a real estate professional who specializes in VA loans.
📝 Closing Disclaimer
This article is intended for educational and informational purposes only and should not be construed as legal, financial, or tax advice. We recommend that you consult with a qualified professional before making any decisions related to VA loans or real estate investment.