VA Loan for Investment Property: Is It Possible?

One of the ideal ways to buy a house for active-duty military personnel, soldiers, and qualified service members is with the VA financing program. Vital benefits of the VA loan include the correct interest rates, no private mortgage insurance (PMI), and no down payment. However, what if you wish to purchase investment real estate with a VA loan? How does it work, and is that even possible?

In this blog post, we will answer the question, “Can you use a VA loan for investment property?” or explore ways to take advantage of this benefit while complying with VA loan guidelines.

Can You Use A VA Loan For An Investment Property?

VA loan use requirements state that you must use the house or land that you purchase as your primary residence rather than a rental, break, or other type of investment property. However, the VA loan program offers fewer criteria for borrowing than traditional loans.

You have some choice for utilizing your principal residence to make rental income, even if you are not permitted to use a VA loan for a rental property with a detailed area of renting it out.

How to Apply for a VA Loan for Your Investment or Rental Property

To turn your primary residence into a real estate investment property, follow the strategy given below:

Verify Your Eligibility Information
Before submitting an application for a VA loan, you have to verify that you fulfill at least one of the following VA eligibility requirements:

Active-duty military personnel and veterans: In times of war, you must have served for 90 continuous days; in periods of peace, you may have been for 181 days.
Reserves or the National Guard: Before being honorably released or added to the retired list, you must serve for six years. In addition, you have to spend 90 days overall on active duty, at least 30 of which must be consecutive.

You should be eligible to apply for and receive your Certificate of Eligibility (COE), which will show your eligibility for a VA loan if you change any of the previous wants or if you are a qualifying surviving spouse who did not remarry when you turned 57 or before December 16, 2003.

Lease a Room in Your One-Family House
You have the right to rent out one or more rooms in your single-family home, but your property has to be your principal residence. Consequently, consider buying a house with more rooms or space when you wish to finance with a VA home loan and earn some rental money.

If you want to live further away from your potential tenants, you may instead purchase a home with a garage that has been turned into a living area or a separate apartment on the land. You may also think about renting out that additional room for a holiday using VRBO or Airbnb.

Purchase a Multiunit Building
Buying quadruplex rentals with up to four units, duplexes, triplexes, or fourplexes (also stated as quadplexes), is allowed by the VA.

Living on the site would be mandatory, as one apartment would have to be your personal dwelling. However, you could be renting out the spaces you’re not using to get extra money.

Utilize Your VA Benefits to Purchase a New Home
The maximum sum that the Department of Veterans Affairs will pay back to the mortgage lender in the event that you default on your loan is set by your VA loan rights relatively than typical loan restrictions.

The VA provides two categories of benefits:

Complete eligibility: Complete entitlement means that you have never utilized your home loan benefit or that you gained your full entitlement as a consequence of paying off a prior VA home loan. Loans above $144,000 are no longer bound by VA limitations for qualified borrowers who have full entitlement. In addition, the VA guarantees to pay back 25% of any loan amount that your mortgage lender authorizes.
Partial entitlement: Also known as reduced entitlement or remaining entitled, this means the fact that you are now making payments on a VA loan, that you continue to live in a property that you purchased with a VA loan and have fully repaid, or that you have previously fallen behind on a VA mortgage.

With partial entitlement, you may be able to buy an additional main house with no money down whilst turning your previous home into a rental property, but you’ll need sufficient entitlements to pay for 25% of your new mortgage. If not, you could have to pay a down payment to your VA lender to make up the difference.

Renting Out Your Home After 12 Months
If you’ve lived in your home for a year and have been sent to a distinct duty post before the 12-month mark, you can rent out your VA loan-financed home. To be eligible for a VA loan, your renter must not be an armed forces member or soldier.

Remember, though, that you can’t utilize a VA loan to buy another house until you have regained your previous loan entitlements.

Use VA Rationalize Or IRL To Refinance
Purchase a primary home in the new area if you are still an active-duty military member and your new permanent posting is situated far enough away for a daily commute.

However, what if you want to put out your current home rather than selling it to lose your VA benefits? A VA Interest Rate Reduction Refinance Loan (IRRRL), also referred to as a VA Rationalize Refinance your loan is accessible to you.

The VA residence restrictions, which ask you to use your property as your key place of residence, will not apply to you if you change your VA mortgage loan to a VA IRRRL. With a VA Modernize Refinance, you are able to finance your current home while applying for a new VA loan to buy a new key property.

In order to be eligible for a VA IRRRL, you must:

Mortgage payments on your present residence for six months in a row
Evidence that refinance will have a positive, immediate economic impact, such as lowering your mortgage rate or turning your adjustable-rate mortgage (ARM) into a fixed-rate mortgage.

Switching to a Traditional Loan
Recapitalizing your present VA loan to an expected loan is an option if you aren’t qualified for a VA IRRRL. Predictable mortgages have fewer property boundaries than VA loans, so you can finance a rental property with a conventional mortgage even if VA loans have more flexible financial qualifying conditions.

Also, you will recover all of your VA benefits if you change to a conventional loan, making you qualified for a new VA loan with no dejected payment. However, when you are ready to refinance to a predictable loan, don’t forget to account for closing fees.

Get a Home Sale
Selling may possibly turn your house into an investment property, mainly if you’ve built up equity in it, even if you won’t be able to maintain it as a rental.

The difference between the amount you paid toward principal and interest on your home loan and the fair market value of your house is termed home equity. We will get this equity as income if you sell your house for market value or higher. A return on your investment will be whatever money that remains after your VA mortgage has been paid off.

While it cannot be utilized as a VA loan for investment property in a conventional way, there are creative methods of using the program’s advantages to broaden your real estate portfolio. Buying a multi-unit building and occupying one of the housing or using house hacking methods may make money from rent and pay your mortgage. This may eventually help you increase your equity, cut costs, and begin to produce cash flow from your real estate investments.

To choose the investment that best suits your needs and objectives, be sure you are mindful of what is required under the VA and consider all of your possibilities.