VA loans are intended for purchasing a primary residency
Typically, VA home loans are for financing primary residences. However, VA borrowers can keep their current home and buy a new home elsewhere. They may even be able to rent out their current home to help pay for the new home.
Below, we’ll explore what requirements you must meet and how to qualify to rent out a home if you have a VA loan.
When can you rent out a VA loan home?
The Department of Veterans Affairs, which backs VA home loans, requires that VA homebuyers must meet certain occupancy requirements.
However, these occupancy requirements apply to a home you are buying, not a home you already own. That means, if you own a VA-financed home and need to buy another home, you can use the VA loan program again, as long as you plan to use the new home as your primary residence.
Additionally, there are some situations — such as deployment — when the VA will make exceptions to its occupancy requirements. More on these exceptions below.
VA loans can be used for...
- Financing a single-family home to be used as a primary residence
- Financing a multi-unit property of up to four units, as long as you plan to use one of the units as your primary residence
VA loans cannot be used for...
- Financing a vacation home or second home
- Financing a rental property or investment property
VA home loan occupancy requirements
To finance a property with a VA loan, you must meet the following requirements:
- You must move into the home within 60 days of closing the loan
- Most VA lenders will require you to live in the home for a minimum of 12 months
VA occupancy requirement exceptions
The Department of Veterans Affairs offers some exceptions to its occupant requirements, meaning you may be able to use a VA loan if:
- You’re retiring
- The home needs work
- You work out of town, are deployed, or have a permanent change of station (PCS)
- Your spouse will live there full-time
- Other lender-approved extenuating circumstances
Interest Rate Reduction Refinance Loan (IRRRL) occupancy exception
In addition to the exceptions named above, the VA does not require occupancy certification for VA borrowers getting a VA Interest Rate Reduction Refinance Loan (IRRRL), also sometimes known as a VA Streamline Refinance.
This means VA borrowers who can certify they have lived in the home as a primary residence for the past year and qualify for an IRRRL may be free to rent the home out after refinancing.
But you don’t need to refinance to rent out your VA home so only pursue this option if it also gets you more favorable loan terms, such as a lower interest rate.
Also, keep in mind that a VA cash-out refinance carries an occupancy requirement so you will likely need to remain in the home for at least another year with this type of loan.
5 tips for renting out your VA loan home
Here are a few things to keep in mind for homeowners looking to rent out a home they purchased with a VA loan.
- You don’t have to refinance. It’s a common misconception that VA homeowners need to refinance to an IRRRL or out of the VA home loan program altogether before they can rent out the home. However, simply living in the home for a full year to meet the occupancy rules — or asking the VA to grant an exception — will also enable you to rent.
- It may reduce your entitlement. The VA no longer imposes loan limits on first-time VA loans but limits will apply to subsequent uses of the VA mortgage loan benefit. Since some of your VA entitlement has been tapped for your outstanding VA loan, you will have less than your full entitlement available to guarantee any new VA loan. Of course, you can still take out as large a loan as you can qualify for but you will need to make a down payment. Your Certificate of Eligibility (COE) will indicate the amount of your remaining entitlement.
- You can restore your entitlement. Military members who previously used their VA loan benefit and fully paid off the home can restore their full entitlement and borrow again with no loan limits. This restoration does not happen automatically but a loan officer can help you begin the process.
- You may need a new homeowners insurance policy. Home insurance companies offer specific policies for investment property owners. The homeowner insurance that you had when you lived in the home may not cover your liabilities as a landlord. Check with your insurer as you make the transition to property manager.
- It can be tricky to document rental income. As you start earning rental income on your investment property, a tax professional can help you to make sure you’re reporting it correctly.
How to use rental income to buy a new home
If you already have an outstanding mortgage loan amount, it may be difficult to meet your mortgage lender’s debt-to-income ratio requirements. That’s because your monthly payments represent too big a chunk of your monthly income, and a lender may not be sure you can afford an additional mortgage payment.
One potential way to resolve this is to use rental income from your first home on your loan application for the second home.
However, note that you’ll typically need to have established a history of at least two years of rental income on a property before a mortgage lender will consider it.
Still, with advance planning, this could substantially improve your odds of approval for a second mortgage.
VA rental home FAQ
Can a VA loan be used to purchase rental property or investment property?
No, a VA loan is intended to finance a primary residence and cannot be used to purchase rental property, investment property, a vacation home, or a second home.
When can I rent my house with a VA loan?
Typically, VA lenders will expect you to occupy the home as a primary residence for at least one year however you may be able to request an occupancy requirement exception earlier than that if you meet certain requirements such as a transfer to a new duty station.
Do I have to refinance before I can rent out my VA home?
No, you do not need to refinance to be able to rent out your VA home.
Can you use a VA loan for a rental home?
The VA loan program is intended to help military service members to purchase a primary residence, not investment properties. While it is possible to rent out a home you purchased with a VA loan, you’ll need to meet the occupancy requirements first.
Bottom line: Renting out a VA loan home
While a VA loan home may be more difficult to rent out, it’s certainly not impossible. So don’t let the possibility of a future move prevent you from taking advantage of the VA home loan benefit, which offers significant savings to veterans, active-duty service members, National Guard members, and surviving spouses, including:
- Zero down payment requirement
- Flexible qualifying requirements for credit score and DTI
- Competitive interest rates compared to FHA or conventional loans
- No mortgage insurance
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