How To Use A VA Loan For Your Rental Or Investment Property
Follow the steps and tips below to get your primary residence pulling double duty as a real estate investment property.
1. Make Sure You Meet Eligibility Requirements
The first step you’ll need to take before applying for a VA loan is to make sure you meet at least one of the following VA eligibility requirements:
- Veterans and active service members: You’ll need to have served 90 continuous days during wartime or 181 days of active service during peacetime.
- National Guard or Reserves: You’ll need to have completed 6 years of service before being honorably discharged or placed on the retired list or have served active duty for a total of 90 days with at least 30 days consecutively.
If you meet any of the above requirements – or you’re a surviving spouse who didn’t remarry before turning 57 or before December 16, 2003 – you should be eligible to apply and qualify for your Certificate of Eligibility (COE), which will prove that you’re eligible for a VA loan.
2. Rent Out A Unit In Your Single-Family Home
While your property must serve as your primary residence, you’re allowed to rent out one or more rooms in your single-family home. So, if you want to finance with a VA home loan and generate some rental income, consider purchasing a home with additional rooms or space.
You can also buy a property that has a detached apartment on the lot or a garage that has been converted into a living space if you prefer more separation from your potential tenants.
3. Buy A Multiunit Property
The VA allows you to purchase a multifamily property of up to 4 units, such as a duplex, triplex or fourplex – also known as a quadplex.
One unit would need to serve as your primary residence, so you’d be required to live on the premises. But you could generate additional income by renting out any units you’re not occupying
4. Buy A Second Home With Your VA Entitlements
Instead of traditional loan limits, the Department of Veterans Affairs uses VA loan entitlements to determine the maximum amount they’ll repay your mortgage lender if you default on your loan.
The VA offers two types of entitlements:
- Full entitlement: Full entitlement means that you’ve never used your home loan benefit or that your full entitlement has been restored because you’ve repaid a previous VA home loan in full. The VA no longer places limits on loans over $144,000 for eligible borrowers with full entitlement. The VA also guarantees to repay 25% of any loan amount that your mortgage lender approves you for. So, if you have full entitlement, you’re not limited on how much you can borrow without making a down payment.
- Partial entitlement: Also called reduced entitlement or remaining entitlement, this means that you currently have a VA loan you’re paying for, you’re still living in a home you purchased with a VA loan that you’ve repaid in full, or you’ve previously defaulted on a VA mortgage.
With partial entitlement, you may be able to buy a second home with no money down, but you’ll need enough entitlements left over to cover 25% of your new mortgage loan. Otherwise, your VA lender may require you to make a down payment to cover the difference.