Can You Buy an Investment Property With a VA Loan?

Service members, veterans, and eligible surviving spouses often consider using their VA loan benefits for investment properties. The VA loan program, guaranteed by the Department of Veterans Affairs, offers significant advantages like no down payment and competitive interest rates, primarily aimed at facilitating homeownership. Understanding how these benefits align with investment goals requires a clear look at the program’s core purpose and guidelines.

Core VA Loan Occupancy Requirements

VA loans are designated for a primary residence. The property purchased with a VA loan must be the home where the borrower intends to live. Second homes or properties acquired solely for rental income, without the borrower residing there, do not qualify for VA financing. Borrowers are generally required to occupy the property within 60 days of the loan closing.

Exceptions to this 60-day rule exist, such as for active-duty service members whose spouse will occupy the home, or in cases of pending retirement within 12 months, allowing for a later move-in date. The VA loan program supports personal homeownership. A property purchased purely as an investment, where the borrower never intends to live, falls outside the scope of the VA loan program.

Multi-Unit Property and Owner-Occupancy Exception

Despite the primary residence rule, a VA loan can acquire a multi-unit property if the borrower occupies one unit as their primary residence. This allows for purchasing buildings with up to four separate living units. The owner-occupancy requirement remains, meaning the borrower must live in one unit, typically for at least 12 months.

Lenders can consider rental income from other units when evaluating the borrower’s loan qualification. This income stream can help meet debt-to-income ratio requirements, making a multi-unit purchase more accessible. The property’s primary function for the borrower must still be as their home, not solely as a rental business.

Using VA Loan Equity for Investment

An existing VA-financed primary residence can indirectly support investment through a VA cash-out refinance. This refinance allows a borrower to replace their current mortgage with a new VA-backed loan for a higher amount, taking the difference in cash. Funds from a cash-out refinance can be used for various purposes, including investing in other properties or financial ventures.

To qualify for a VA cash-out refinance, the home must remain the borrower’s primary residence. While the VA allows for a loan-to-value (LTV) ratio of up to 100%, many lenders typically cap the LTV at 90% of the home’s appraised value, including the VA Funding Fee. This tool enables veterans to leverage equity in their primary home for additional investment opportunities, separate from the initial VA loan’s purpose.

Non-VA Loan Options for Investment Property

For investment goals outside VA loan primary residence and owner-occupancy requirements, several alternative financing options exist. Conventional loans are a common choice for rental properties, typically requiring higher credit scores, often 620 or above, with some lenders preferring 720 or higher. Down payments for conventional investment property loans are also larger, generally ranging from 15% to 25% of the purchase price. Lenders usually require cash reserves, often equivalent to six months of housing expenses, to cover costs during potential vacancies.

Another option is an FHA loan, which, similar to VA loans, is primarily for owner-occupied residences but can be used for multi-unit properties (up to four units) if one unit is occupied by the borrower. For specialized real estate investments, such as property flipping, hard money loans and private money loans are available. These are short-term, asset-based loans from private lenders or companies, focusing on the property’s value as collateral rather than the borrower’s creditworthiness. Hard money loans typically come with higher interest rates, often ranging from 10% to 18%, and can include upfront fees known as points, usually between 2% and 10% of the loan amount.