How to Use Your VA Loan to Invest in Rental Property

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VA LoanCould you use your VA loan to purchase a rental property? Technically, yes and no. According to the Veterans Affairs, VA loans are exclusively designed for purchasing residential properties, excluding investment or rental properties. You must live in the property you’re planning to buy using a VA loan program. But few military people don’t know that there’s a loophole for buying rental properties using VA loans.

The VA Loan Loophole

The VA defines a residential property as a property that should not exceed more than four units for families and a rental unit, except for some joint VA loans. This means that you’re free to buy a multifamily property consisting of four units plus one business property. You could also use the business property for your own business or rent it out.

The key here is that you should live in one of the units and occupy it within 60 days of your loan closing to satisfy the requirements of the VA loan program. This 60-day rule offers some exceptions, such as if the property is being renovated or still under construction. Once you have lived in your property for some time, you could then move out. You can then turn the property into an exclusive investment property.

It’s also vital to remember that VA loans do not have limits. However, every veteran has a specific amount he or she’s qualified to borrow even without having to pay a down payment. In general, $36,000 is the average entitlement amount for veterans, but some VA-approved lenders sometimes allow loans as high $100,000+, considering that the borrower satisfies the lender’s income and credit requirements.

What’s more, if you don’t use your allotted entitlement for buying one property, you’re free to use your remaining entitlement for another VA loan on another property, like another multifamily property or a single-family house. The VA loan program also offers another loan type known as the Interest Rate Reduction Refinance Loan (IRRRL). This loan enables you to refinance a previously bought property using your VA loan so that you could secure a better interest rate.

The Bottom Line

Yes, you could use a VA loan for purchasing an investment property, provided that you first live in it for the required time. Should you decide to relocate, you could hold on to your property and rent it out and even buy another property using the balance of your VA loan entitlement. Speak with an experienced VA-approved lender to help you determine the best choice for you.

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