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Can You Use a VA Loan for an Investment Property?

VA home loans aim to make homeownership more accessible to veterans and service members by giving them more affordable financing options. If you qualify for a VA loan, you may be wondering whether you can use it to fund an investment property. Today, we’ll review how these loans work, whether you can use a VA loan for an investment property, and creative ways to finance income properties. Read along to learn more!

Contents of This Article: 

What Is a VA Loan?

A VA loan is a type of mortgage loan available to veterans, service members, and their surviving spouses through a program established by the U.S. Department of Veterans Affairs (VA). 

Through the program, private lenders provide loans to borrowers, with the VA guaranteeing a portion of the loan. With VA loans, borrowers can purchase a home with little to no down payment, a competitive interest rate, and no private mortgage insurance. 

With such desirable terms, you may wonder if you can use your VA loan for an investment property. As rental property managers in Washington DC, we understand why you’d want to explore the possibilities! However, while that’s typically not what they’re used for, it’s not impossible. Read along as we discuss some possibilities for making a side income with your primary residence. 

Can You Use a VA Loan for Investment Property?

The purpose of a VA loan is to help veterans or military members purchase a home as a primary residence. This means you must live in the home for the majority of the year. As such, you cannot outright buy a rental property with your VA loan. However, a few exceptions allow you to use a VA loan to make some rental income. 

How to Use a VA Loan for Investment Property

While you have to use a VA loan for your primary residence, there are still some ways you can use your home as an investment property to earn some side income. Here are some of the steps you can take to make it work. 

  1. Meet Eligibility Requirements
  2. Rent Out a Room In Your Home
  3. Buy a Multi-Family Property
  4. Rent Your Home After 12 Months
  5. Refinance Your Loan

Meet Eligibility Requirements

First, you must meet the eligibility requirements for a VA loan, typically including one or more of the following.

  • Serving on active duty for a certain period of time during wartime or peacetime
  • Serving in the Reserves or National Guard for a certain period of time
  • Being a veteran who was honorably discharged after serving
  • Being the surviving spouse of a service member who died in the line of duty or as a result of a service-related disability

If you fall under one of these categories, the next step is to obtain a Certificate of Eligibility (CEO), meet lender requirements, and ensure the property meets VA and lender standards. 

Rent Out a Room In Your Home

While the property must be your primary residence, that doesn’t mean you can’t use it as your home and a rental property. This is typically known as house hacking and can be a great strategy to earn some side income. If you feel comfortable renting out a room or portion of your home, you can purchase a home with more than enough space to do so. Additionally, you may purchase a home with a guest home or a garage that you can convert to a living space if you want separation from potential tenants. 

Buy a Multi-Family Property

Another option is to buy a multi-family property with your VA loan. The VA allows you to buy a property with up to four units, meaning you could buy a duplex, triplex, or fourplex. However, you must intend to live in one of the units as your primary residence. 

Rent Your Home After 12 Months

After you’ve lived in your home for a year, you can rent out your VA loan-financed property. However, remember that you won’t be able to purchase another home with a VA loan until you’ve restored your entitlements from the first loan. 

Refinance Your Loan

There are a few options for refinancing your VA loan to turn your home into an investment property. For instance, if you’re an active-duty member and you must move to a new location, you may want to purchase a new primary residence. In that case, instead of selling your old property, you can take out a VA Streamline Refinance, otherwise known as a VA Interest Rate Reduction Refinance Loan (IRRRL)

When you convert your mortgage loan to a VA IRRRL, you’re exempt from the rules requiring you to use the property as your primary residence. From there, you can purchase a new primary home with a new VA loan and finance your old property with a VA Streamline Refinance. 

If you don’t qualify for a VA IRRRL, you can refinance your VA loan to a conventional mortgage loan. However, VA loans often have more flexible qualifying criteria than conventional mortgages, so it’s important to ensure you qualify and can pay the closing costs. 

Alternatives to VA Loans to Fund Rentals

If you’re interested in buying rental properties but don’t qualify for a VA loan or don’t want to use your VA loan, there are several other options. Here are a few alternatives to using a VA loan for investment property. 

  • Conventional Loans
  • FHA Loans
  • Private Lenders
  • Hard Money Lenders
  • Seller Financing

Conventional Loans

Conventional mortgage loans are typically the most common choices for financing investment properties. However, traditional mortgage loans have stricter qualifying criteria and larger down payment requirements compared to VA loans. 

FHA Loans

FHA loans are mortgages backed by the Federal Housing Administration. Since they’re insured by the federal government, they may be easier to qualify for, making them another alternative to VA loans. Like VA loans, they’re primarily designed for owner-occupied properties. However, you may be able to finance a multi-family property with up to four units, live in one, and rent out the rest. 

Private Lenders

If you’re looking for a flexible financing option for an investment property, a private lender may be able to help. Most private lenders have extremely flexible qualifying criteria, so they’re fairly easy to obtain, but they may have higher interest rates. Additionally, most private loans are short-term, so you’ll have to repay them much quicker than you would a traditional mortgage loan. 

Hard Money Lenders

Similar to a private loan, a hard money loan is another option for financing an investment property. Hard money lenders generally have less strict lending criteria, as they care more about the value of the property rather than your credit score or financial history. In turn, they use the property as collateral, so if you can’t repay the loan, you risk losing the property. Additionally, you’ll probably pay higher interest rates and fees with a hard money lender. 

Seller Financing

In some cases, sellers may be willing to finance the purchase of their property directly, allowing you to bypass traditional lenders altogether. Seller financing arrangements are generally much more flexible in terms of down payments, closing costs, and repayment terms. So, if you don’t qualify for a traditional mortgage loan, ask about seller financing options. However, keep in mind that you’ll likely pay a higher interest rate. 

How Will You Manage Your Rental?

If you’re thinking about buying a rental property or using your VA loan for investment property, it’s important to consider how you’ll manage it. Typically, if you’re using your primary residence as an income property, you can find tenants and manage the units yourself. 

However, if you plan on expanding or buying multiple rental properties in the future, it may help to pass on some of the responsibilities to a rental property management company. 

Need More Advice? contact us today!

Bay Property Management Group offers comprehensive rental management services throughout Baltimore, Philadelphia, Northern Virginia, and Washington, DC. Contact us today to learn more about our services and how we can help your rental business succeed.