Can I Use a VA Loan for an Investment Property?

Rents are sky-high right now. That’s bad news for a lot of people, but not for landlords. 

If you’re wishing you could tap into this opportunity to make some semi-passive income, you might be wondering if a VA loan could help. 

The answer is: maybe. The Department of Veterans Affairs has specific occupancy rules that make this a little bit tricky, but it’s not impossible. In certain situations, you can use a VA loan for an investment property.

The VA’s occupancy rules

The VA has quite a few requirements you have to meet in order to get them to back your mortgage. When it comes to investment properties, the most relevant is the occupancy requirement. Basically, you need to live at the property you’re buying with the VA loan. 

Official VA guidance leaves a little wiggle room here, like for active-duty military members who are stationed overseas. But generally speaking, if you’re going to buy a property with a VA loan, you have to either occupy it immediately or certify that you intend to move in within 60 days. 

So if you were thinking of using a VA loan to buy an investment property that you would manage from afar, you’re out of luck. But there are a handful of ways you can generate rental income with a place you buy with a VA loan. 

If you want to make immediate rental income

First and foremost, the VA offers a clear-cut path to buying an investment property while still satisfying the occupancy requirement. You can use a VA loan to buy a duplex, triplex, or four-unit property. You can live in one unit while renting out the other one, two, or three spots. 

With this multi-family property allowance, you can start generating rental income as soon as you can find the renters. 

The thing to consider here is your proximity to those renters. Some landlords like being onsite. It makes for a short trip to change a lightbulb or check out that leak. But if you don’t love the idea of having your renters in your literal backyard, you might want to tap another option on this list.  

Ways to make rental income after some time

The VA’s occupancy rules are pretty strict. But they really hinge on what you plan to do immediately after getting the keys to the house. As long as you can honestly certify your intent to occupy while you’re closing your VA loan, you should be covered there.

As time goes on, more options appear on the table. Eventually, you can probably get rental income by:

Moving out and renting the house

As long as you genuinely lived in the house for a while, you’ve met the VA’s occupancy requirement. In fact, the VA doesn’t have a specific rule about how long you have to be the property’s resident. That gives you the option to eventually move out and rent the property. 

While the VA doesn’t have a hard-and-fast rule about the length of your residency, your lender probably will. VA lenders typically require people to live in the house for a year before they’ll allow them to move out and start renting it. So if you think you might want to explore this option eventually, ask your lender about their specific rules. 

Refinancing with an IRRRL

The VA offers a streamlined refinance, meaning you can refi with less paperwork and hassle. The interest rate reduction refinance loan (IRRRL) lets you skip the appraisal, credit underwriting, and more. And as an added benefit, you don’t have to recertify occupancy as part of this refinance. You only have to certify that you occupied the property at one time. 

In other words, you can use an IRRRL to prove that you’ve met the occupancy requirement, freeing you up to start renting the house. 

There are a couple of caveats here. First, to be eligible for an IRRRL, you have to meet the seasoning requirement. When you make your first mortgage payment, a clock starts ticking. 210 days later, you become eligible for an IRRRL. So again, this doesn’t give you a way to make rental income right away. But it might give you a shorter timeline than your lender allows. 

The other caveat is that to be approved for an IRRRL, you have to be able to show that there’s a net tangible benefit to the refinance. That could be a lower monthly payment or a more stable payment (if you’re switching from an ARM to a fixed-rate loan). 

Paying off the loan and using the one-time entitlement restoration

Most people who want to make rental income still need somewhere else to live. The above options keep your VA loan entitlement tied up with the house you’re now renting, and that might be tricky. 

But if you can pay off the VA loan in full, you can use the VA’s one-time entitlement restoration to help. That restoration allows you to fully restore your entitlement while keeping that house. That means you can get a new VA loan to buy a second home that you live in while renting out the first house you bought. 

In short, VA loans aren’t traditional investment property loans, but that doesn’t mean you can’t make rental income with them. Your lender can help you explore all of these options to see which makes the most sense for you. To find a VA lender who can tell you about their multi-family property loans, their timeline to allow you to move out and rent the property, and more, use our list.

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