Can I Use My VA Loan to Buy a Rental Property?
Learn how your VA loan can be leveraged for properties that include rental units, while meeting occupancy requirements.
VA loans primarily help eligible service members, veterans, and surviving spouses purchase a home for their own use. However, the program offers flexibility for multi-unit properties, allowing a borrower to live in one unit while renting out others. This enables individuals to use their VA loan benefits to acquire a property that includes rental units and potentially generate income.
Primary Occupancy and VA Loan Eligibility
A fundamental requirement for obtaining a VA loan is that the borrower must intend to occupy the property as their principal residence. This ensures the loan program fulfills its purpose of assisting military members and veterans with homeownership. Borrowers are required to certify this intent.
The Department of Veterans Affairs (VA) expects borrowers to move into the acquired property within 60 days of the loan closing. While this is the standard timeframe, the VA recognizes that certain circumstances, such as active duty deployments or significant property repairs, may necessitate an extension, potentially up to one year. Lenders verify this occupancy intent during the loan process, often requiring signed certifications. If a borrower fails to meet the occupancy requirement or if their stated intent is found to be false, the loan could be called due in full, requiring immediate repayment.
Exceptions to the immediate occupancy rule exist for military personnel deployed or on temporary duty, where a spouse or dependent may fulfill the occupancy requirement. The VA loan is not intended for the purchase of second homes, vacation properties, or pure investment properties where the veteran does not reside. This primary occupancy rule ensures benefits are directed towards supporting personal homeownership.
Using a VA Loan for Multi-Unit Properties
A notable exception to the owner-occupancy rule allows for the purchase of multi-unit properties (two to four units). The veteran borrower must still occupy one unit as their primary residence. This arrangement permits the veteran to live in one dwelling while renting out the remaining units, potentially generating rental income. This strategy is sometimes referred to as “house hacking.”
Eligible property types include duplexes, triplexes, and fourplexes. Properties with five or more units are classified as commercial real estate and do not qualify for a VA loan. All units must meet the VA’s Minimum Property Requirements (MPRs), which ensure the home is safe, sanitary, and structurally sound. This includes functional utilities, structural integrity, and no health hazards. Each unit must have independent utility services or shared connections with individual shut-offs.
The property must be marketable and appeal to most buyers. The VA appraiser assesses the property to confirm its value and compliance. While a VA loan for a multi-unit property allows for rental income potential, the primary intent remains owner-occupancy.
Financial Considerations for Multi-Unit VA Loans
When utilizing a VA loan for an eligible multi-unit property, potential rental income from non-occupied units can aid borrower qualification. Lenders may consider a portion of this projected rental income to offset the mortgage payment and assess repayment ability. Lenders typically count up to 75% of estimated or verified rental income from additional units as qualifying income. This percentage accounts for potential vacancies, maintenance, and other rental property expenses.
To use projected rental income, some lenders may require prior experience in managing rental properties. If no prior experience, the VA may permit income consideration if the borrower hires a professional property management company. This requires a signed agreement and documentation supporting projected market rent, adjusted for vacancy factors.
Beyond rental income, borrowers must meet standard VA loan eligibility, including credit and income requirements. While the VA does not set a minimum credit score, many lenders prefer at least 620. Lenders evaluate debt-to-income (DTI) ratio, aiming for 41% or lower, though a higher DTI may be acceptable with compensating factors like sufficient residual income.
Residual income, money remaining after major monthly expenses, is a factor the VA emphasizes for daily living costs. Requirements vary by loan amount, region, and family size. Some lenders may also require cash reserves, such as six months of mortgage payments, if rental income is used for qualification.