Can You Use a VA Loan for a Rental Property?

VA loans represent a benefit for eligible service members, veterans, and surviving spouses, offering a path to homeownership with unique advantages. These government-backed loans often require no down payment, which can reduce the initial financial burden of purchasing a home. Borrowers also avoid paying private mortgage insurance, a common expense with conventional loans. The program aims to make homeownership more accessible, and understanding its rules, especially concerning properties that could generate rental income, is important.

Understanding the Occupancy Requirement

A key aspect of VA loans is the occupancy requirement, which requires the property to be the borrower’s primary residence. This means the veteran or an eligible family member, such as a spouse, must intend to live in the home. The Department of Veterans Affairs (VA) expects occupancy within 60 days of the loan closing.

There are situations where this 60-day rule is flexible. For example, service members who are deployed or anticipate returning from deployment may have an extended period to occupy the property, sometimes up to 12 months following closing. A spouse can fulfill the occupancy requirement on behalf of the veteran, which provides flexibility for active-duty service members. The core principle remains that the VA loan is intended for a home the borrower will reside in, not purely as an investment property.

Using VA Loans for Multi-Unit Properties

While a VA loan cannot be used solely for an investment property, it can purchase a multi-unit property, such as a duplex, triplex, or fourplex, provided the veteran occupies one of the units as their primary residence. This arrangement allows the borrower to live in one unit while renting out the others, potentially generating rental income. This strategy, sometimes referred to as “house hacking,” enables borrowers to leverage their VA benefits for a property with income potential.

Potential rental income from non-occupied units can help borrowers qualify for the loan, though specific conditions apply. Some lenders might require evidence of landlord experience, such as a two-year history of managing rental properties, or a property manager in place for the income to be considered. Additionally, lenders may require a certain amount of cash reserves, often equivalent to six months of mortgage payments, if projected rental income is factored into the qualification. When rental income is considered, lenders typically use a percentage, such as 75%, of the verified or projected rent to account for potential vacancies or expenses.

Borrower and Property Qualifications

Securing a VA loan involves meeting borrower and property qualifications. Borrowers must first obtain a Certificate of Eligibility (COE), which verifies their service and entitlement to the VA home loan benefit.

Lenders assess financial factors such as creditworthiness, debt-to-income (DTI) ratios, and residual income. While the VA does not set a minimum credit score, most lenders look for a score around 620 or higher. The DTI ratio, which compares monthly debt payments to gross monthly income, is recommended to be at or below 41%, though exceptions can be made with compensating factors like strong residual income. Residual income refers to the amount of money a borrower has left each month after paying major expenses, including the mortgage, taxes, and other obligations, and is evaluated based on family size and geographic region.

Properties financed with a VA loan must also meet the VA’s Minimum Property Requirements (MPRs). These standards ensure the home is safe, sanitary, and structurally sound. A VA-assigned appraiser evaluates the property’s value and verifies its compliance with MPRs during the appraisal process. This appraisal checks for conditions like adequate living space, functional mechanical systems, proper roofing, and access to safe water and sanitation. Any identified issues that do not meet MPRs must be repaired before the loan can close.

The VA Loan Application Process

The VA loan application process follows a structured path. The initial step involves finding a VA-approved lender experienced with the program, as not all lenders offer VA loans. Engaging with such a lender early can streamline the process and provide guidance.

After selecting a lender, borrowers proceed with pre-approval. This stage involves submitting financial documentation, such as pay stubs, bank statements, and tax returns, allowing the lender to assess borrowing capacity. A pre-approval letter strengthens a buyer’s offer when searching for a home.

Once a suitable property is identified and an offer is accepted, the loan moves into the appraisal and underwriting phases. A VA appraisal is ordered to determine the property’s value and ensure it meets MPRs. The lender’s underwriting team reviews all documentation to finalize loan approval. The final step is closing, where all necessary documents are signed, and the property officially transfers to the borrower.