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.
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.