Can You Buy an Investment Property With a VA Loan?

The VA loan program offers a significant benefit to eligible veterans, active-duty service members, and surviving spouses, primarily by facilitating homeownership. This program allows for advantageous terms, often including no down payment, competitive interest rates, and no private mortgage insurance (PMI) requirements. While the core purpose of a VA loan is to help individuals purchase a primary residence, questions often arise about its use for investment properties. The general rule specifies that VA loans are for owner-occupied homes, meaning direct investment property purchases are typically not allowed. However, certain specific circumstances and strategies exist where a VA loan can be involved with properties that generate rental income.

Understanding VA Loan Occupancy

The foundation of the VA loan program rests on the concept of owner-occupancy, which means the borrower must intend to live in the property as their primary residence. This requirement ensures the loan fulfills its purpose of providing housing for service members and their families. Upon closing, borrowers are generally expected to occupy the home within a “reasonable time,” which is typically defined as 60 days. There are some exceptions to this 60-day rule, such as deployment, permanent change of station (PCS) orders, or if the home requires significant renovations before move-in; in these cases, an extension of up to 12 months may be granted.

Borrowers must certify in writing their intent to use the property as their primary residence. While there is no strict timeline for how long continuous occupancy must last, many lenders require borrowers to sign documents indicating they plan to live in the home for at least 12 months. The VA’s emphasis on primary residency distinguishes its loans from those used purely for investment purposes, vacation homes, or commercial properties. This rule prevents the use of VA loans solely as a commercial investment tool.

Multi-Unit Property Purchases

While a VA loan cannot be used for a property intended solely for investment, it can be utilized to acquire a multi-unit property, such as a duplex, triplex, or quadplex. The fundamental requirement for this remains the same: the veteran must occupy one of the units as their primary residence. This approach, often referred to as “house hacking,” allows veterans to generate rental income from the other units, which can help offset mortgage costs.

Lenders may consider the projected rental income from the non-occupied units to help the borrower qualify for a larger loan amount. Typically, up to 75% of the projected rental income can be counted as qualifying income. The property cannot exceed four units, and if it’s a mixed-use property, the commercial space typically cannot exceed 25% of the total square footage.

Converting a VA-Financed Home to a Rental

A common scenario involves a veteran initially using a VA loan for their primary residence, fulfilling the owner-occupancy requirement, and then later deciding to move and rent out the property. The VA generally does not require a borrower to refinance their loan if they move out, provided the initial occupancy requirement was met. It is generally advisable to have lived in the home for at least 12 months before converting it to a rental property.

This flexibility allows veterans to retain their VA-financed home as an income-generating asset if their life circumstances change, such as a new job, family expansion, or military relocation. If a veteran receives Permanent Change of Station (PCS) orders, they may be allowed to rent out their home even earlier than the typical 12-month period, provided they inform their lender and provide documentation. Converting a VA-financed home to a rental can impact a veteran’s ability to use their VA loan entitlement for future home purchases, which necessitates understanding remaining entitlement.

Using Remaining Entitlement for a Second Home

Veterans can potentially use their VA loan benefit more than once, even if they still own a property financed with a previous VA loan. This is possible through the concept of “remaining entitlement,” also known as second-tier or bonus entitlement. If a veteran has used part of their entitlement on a previous home but still has some remaining, they may be able to purchase a second primary residence with a new VA loan. The new property must meet the primary residence occupancy rule.

Calculating remaining entitlement involves determining the maximum entitlement for the county, typically 25% of the conforming loan limit, and subtracting the entitlement already used. For instance, if a veteran has used a portion of their entitlement on a previous loan, they can still use the remaining amount for a new purchase. While full entitlement often allows for no down payment, using remaining entitlement might require a down payment if the new loan amount exceeds what the remaining entitlement can fully guarantee. This strategy allows a veteran to own two properties, one of which can become an investment property, while the newly purchased home serves as their current primary residence.