Having access to VA loans allows veterans to use this loan facility to acquire proper, but there are rules, and VA loan rules can feel strict. Maybe you hope to earn rental income or grow wealth with real estate.
Here is the key point. VA loans are built for your primary residence, not a traditional investment property. Still, many veterans and active-duty service members use these home loans to meet smart real estate goals. This guide shows what is allowed, what is not, and how to plan the next move with confidence.
Key Takeaways
- -VA loans focus on a primary residence, but you can buy a 2-4 unit property if you live in one unit.
- -Six months’ worth of cash reserves are frequently needed, and some lenders allow you to use up to 75% of your anticipated rent to help qualify.
- -You must move in within 60 days of closing and live there about 12 months to meet VA occupancy requirements.
- -Commercial buildings do not qualify. Mixed-use is allowed only if the business space is under 25% of the total area and there are no more than four residential units.
- -Paying off a current VA mortgage restores entitlement. Many borrowers can reuse benefits up to $647,000 for new qualifying purchases as of June 2024.
Exploring Use of VA Loans for Investment Properties
VA loans help eligible buyers, such as veterans and active-duty service members, purchase homes with a small or zero down payment. The Department of Veterans Affairs does not allow VA-backed mortgages to finance properties meant only for renting or speculation.
You must use the home as your primary residence for about the first 12 months after closing.
There is a useful path with multifamily property. A VA loan can finance up to four units if you live in one unit as your main home. For example, buy a triplex, live in one unit, then rent the other two. That plan meets occupancy rules, and the extra rent can help cover your payment.
Using a VA loan only as a rental property breaks the rules. Pure commercial properties are not eligible either.
Understanding VA Loan Occupancy Requirements
VA loans require you to live in the home soon after closing. These rules come from the Department of Veterans Affairs. Your mortgage lender will confirm your plan before approving a VA-backed mortgage.
Requirements for Primary Residence
A property financed with a VA loan must serve as your primary residence. Move in within 60 days after closing. Some buyers get up to one year if they are retiring soon or waiting for major repairs. A spouse can meet occupancy during deployment. Special timing may also apply for unique job situations.
To count future rent from extra units, most lenders want you to live there for at least 12 months. You, a surviving spouse, or an eligible veteran will need a Certificate of Eligibility, called a COE, before using this mortgage loan benefit.
Lenders check your intent to occupy through documents. If you are keeping a former home as a rental, they may ask for details or proof you can manage the property.
Special Circumstances for Multiunit Properties
VA loans allow up to four-unit multifamily properties if you occupy one unit. Some lenders want proof of property management experience before approving multiunit loans. For example, some lenders, such as Veterans United, may ask for a two-year landlord history and signed leases at closing if you plan to use rental income to qualify.
Many lenders will count up to 75% of expected rent from vacant units toward loan approval, but guidelines differ. If you want to use projected rent, plan for six months of cash reserves. For mixed-use buildings, the commercial area must be 25% or less of total square footage, and the residential units must have at least 30 years of expected life based on the appraisal.
Acquiring Multifamily Properties with VA Loans
Buying a multifamily property with a VA loan can lower your living costs and help you start small with real estate investment.
Buying a Property with 2 to 4 Units
VA loans let you buy a multifamily property with two, three, or four units. The VA limits each loan to four residential units. You must live in one unit as your primary residence. Renting the other units can help offset your mortgage. Many call this house hacking.
The property should have at least 30 years of economic life. If you want projected rent to help you qualify, most lenders ask for six months of cash reserves. Some may also ask about basic landlord experience. Mixed-use buildings may qualify if less than 25 percent is commercial space and there are no more than four residential units.
Occupying One Unit and Renting the Others
With a VA loan, you can live in one unit and rent the rest. Lenders often allow up to 75% of projected rent from the other units to count for qualification. Some, like Veterans United, may ask for signed leases and two years of landlord history if you want that income considered.
Using projected rent usually means you need six months of cash reserves. You cannot treat all units as pure investments. The occupancy rule applies for roughly 12 months.
Generating Rental Income Through VA Loans
VA loans can help you buy a multifamily property, live in one unit, and earn rent from the others. Lenders have rules for how they count rental income during approval.
Calculating Rental Income
Many lenders will count up to 75% of projected rental income if you live in one unit. Some, including Rocket Mortgage and Veterans United, may require signed leases before closing and two years of landlord experience. Lenders estimate fair market rent, which means typical rent for similar homes nearby.
Most also want six months of cash reserves if you use projected rent to qualify. Rental income can offset your monthly payment and may raise your approved amount. A few lenders will not include projected rent in your debt-to-income ratio, called DTI, so ask about their rules before you apply.
Rental Income Qualification Rules
Some lenders count up to 75% of projected rent to help your DTI. You usually need signed leases at closing. Many ask for two years of landlord history before they count the rent. If you want to use that income, plan for six months of cash reserves.
Each lender sets its own standards. All income must be clear and easy to verify. The Department of Veterans Affairs expects clean records for any income used in the application.
Innovative Uses of VA Loans for Property Investment
Smart buyers often combine the VA benefit with a multiunit home so their housing cost works harder for them.
Opportunities for House Hacking
A VA loan can power a simple form of house hacking. Buy a 2- to 4-unit property, live in one unit, and rent the others. You must occupy a unit for about 12 months. If you have six months of cash reserves, lenders often count part of the other units’ rent when you qualify.
VA loans do not require private mortgage insurance, known as PMI, which can lower monthly costs compared to many conventional loans. That savings, plus rental income, can help you build equity faster.
Applying VA Loans to Mixed-Use Properties
Mixed-use can work if the space is mostly residential and you plan to live there. The commercial area must be no more than 25% of the total square footage, with four units or fewer. The building should have at least 30 years of remaining economic life based on the appraisal.
Rent from the extra residential units can help you qualify, based on lender rules. Some lenders want cash reserves or basic landlord experience. Commercial rent does not count toward VA loan qualification. Have your Certificate of Eligibility, or COE, ready before you apply.
Limits on Using VA Loans for Property Investment
VA loans come with strict occupancy rules. These rules guide how far you can stretch a VA-backed mortgage for rental goals.
Commercial Property Restrictions
VA-backed mortgage loans cannot finance a property used only for business. Mixed-use can qualify, but the business area must be 25% or less of the total square footage. Also, the building must have no more than four units, and you need to live in one of them.
The VA backs loans for homes that are mostly residential and meet occupancy requirements. Rental income from business space does not help you qualify. Lenders may ask for extra documents for mixed-use. Each unit should have at least 30 years of expected life. Single-family homes and small multifamily properties fit these limits best.
Limitations on Property Flipping
VA loans do not support quick flips. You must use the home as your primary residence for about 12 months. Plan to move in within 60 days and show clear intent to live there. Homes bought only for rapid resale are not eligible for VA financing.
The VA funding fee applies each time you use the benefit, which makes frequent sales costly. You can hold more than one VA loan, but only if you have enough remaining entitlement and meet all occupancy rules. To use your full benefit again, you usually need to pay off the prior VA-backed mortgage and restore your entitlement.
Reinstating Your VA Loan Entitlement
Paying off a VA-backed mortgage restores your VA loan entitlement. Entitlement is the amount the VA guarantees for your loan. To show the change, update your Certificate of Eligibility, or COE, with the Department of Veterans Affairs.
In most cases, the combined total of all active VA loans cannot exceed $647,000. This is the maximum entitlement amount. Moving an older VA loan to a conventional mortgage can free up entitlement. That move can help you buy another primary home or a small multifamily property with your VA benefit.
Borrowers with service-connected disabilities and some surviving spouses may not have to pay the funding fee when reusing benefits.
Some states add rules, and Texas has special limits on certain refinances. Talk with your mortgage lender before you change loans so you stay within VA and state guidelines.
Advantages of VA Loans in Building Wealth
VA financing can reduce your upfront cost, which makes it easier to enter real estate step by step.
Reduced Initial Costs
Many VA borrowers do not need a down payment. Conventional mortgages often require 20% to 30% upfront. VA loans also do not require private mortgage insurance, called PMI, which lowers monthly costs. The VA backs the loan while working with an equal housing lender.
The one-time funding fee is 2.3% for first-time use, then 3.6% for later uses. Some borrowers, such as those with service-connected disabilities or certain surviving spouses, may be exempt. You can roll the fee into the loan to reduce cash at closing. Competitive mortgage rates can then save money over time.
Strategies for Long-Term Property Investment
House hacking can help you build wealth with a VA loan. Buy a small multifamily, live in one unit for about 12 months, and rent the others. Rent can help cover the payment and grow your reserves.
A VA cash-out refinance can let you borrow up to 100% of your home value, based on lender rules. You can use funds to improve the property or buy more rentals. If you later move a VA loan to a conventional mortgage, you may restore your VA entitlement and repeat the approach with a new home. Holding properties long term can raise equity as renters pay down the balance.
Other Loan Options
Conventional loans often work for investment properties, but they usually need a higher down payment, often 20% to 30%. You also need strong credit and stable income. Bank statement or asset-based non-QM loans are more flexible, but rates are usually higher.
DSCR loans, which use the Debt Service Coverage Ratio, rely on rental income instead of personal income.
The National Credit Union Administration regulates many banks and credit unions that offer these loan types. Neighbors Bank offers specialized mortgages for veterans, military families, and civilians if your VA entitlement is used up or you do not qualify for a
VA-backed mortgage. Mortgage brokers can help you compare options like a home equity line of credit or a commercial property loan if your goal is a larger multifamily project.
How to Make the Most of Your Rental Property
Rental property can be a lucrative source of passive retirement income if managed well. After acquiring rental property, having a property manager such as Guest Managers will make it not only worry-free in terms of maintenance and rent collection but also increase occupancy by hands-free marketing and strategic pricing.
Professional property management lets your property generate retirement income and maintain its value for years to come. Talk to us today to start with a free rental evaluation.
Conclusion
VA loans shine for a primary residence, and they can also support a multifamily property when you live in one unit. With the right plan, you can collect rental income and still meet occupancy rules. Used carefully, your VA loan benefit can be a steady path to long-term growth, even if a pure investment property is off the table at first.
Before you apply, check the VA site, speak with a trusted mortgage lender, and confirm how the rules fit your goals. This article is general information, not financial or legal advice.
FAQs
1. Can you use a VA loan to buy an investment property?
No, the Department of Veterans Affairs requires that a VA-backed mortgage be used for your primary residence. You cannot use it directly for buying an investment property or commercial loan.
2. What if I want to rent out part of my home with a VA loan?
You can try house hacking by purchasing a multifamily property, like a duplex or triplex, using your full entitlement. As long as you live in one unit and meet occupancy requirements, rental income from other units may help qualify with your mortgage lender.
3. Are there exceptions for surviving spouses or active-duty service members?
Yes, surviving spouses and active-duty service members may have special rules about their certificate of eligibility (COE) and occupancy rules; check details with your equal housing lender before applying.
4. Can I turn my primary residence into a rental later on?
After meeting initial occupancy requirements set by the Department of Veterans Affairs, you might convert the single-family home into a rental property; however, future loans will need new COE review and could require partial entitlement.
5. Is it possible to refinance my VA loan for real estate investment purposes?
A cash-out refinance or streamline refinance lets you tap equity from your current home; but using those funds to purchase another investment property means following conventional loans guidelines instead of direct VA-backed support.
6. Do lenders look at things like cash reserves or homeowner association fees when approving these loans?
Mortgage lenders often consider cash reserves along with factors such as closing costs and HOAs when reviewing applications; always provide up-to-date information so they can analyze risk accurately through NMLS consumer access systems like quickenloans.com or freddiemac.com affiliated sites under Rocket Companies’ umbrella.
