The long and short answer to the question regarding whether or not you can use VA financing to purchase a rental property is “no.” You cannot use VA financing for this purpose. The intention of the program is to help veteran’s secure safe and sanitary primary housing. If a veteran already owns a home, he cannot “reuse” his benefits on an investment property. There are exceptions to the rule, though.
What is a Rental Property?
First, let’s look at what how the VA defines an investment property. Basically, if you do not live in the home, it is an investment property or at the very least, a second home. The VA does not finance either of these types of homes. They only guarantee financing for those that do not currently own a home. Any property you purchase with the intention to rent it out to someone else or to live in on a seasonal basis is considered an investment property or second home and is not eligible.
The Exception to the Rule
As with most rules, there is an exception to the investment property rule with VA loans. If you purchase a multiple unit property, such as a 4-unit property, as that is the maximum amount of units allowed, you can secure VA financing if you occupy one of the units. This way you satisfy the occupancy requirement, while at the same time you can rent out the other units. The money you make can help you make your mortgage payment, making it as if the VA gave you an investment property loan.
The key to this working, though, is that you have to live in the property the entire time you hold the VA loan. You cannot move in temporarily with the intention of moving out down the road and renting out the 4th unit. You sign a document at the closing stating that you intend to live in the property as long as you hold the VA loan.
The VA IRRRL Exception
There is yet another exception to the rule regarding whether or not you can purchase a rental property with a VA loan. Just as you stated that you intend to live in the property as long as you have the VA loan, you have the option to move out if you refinance with the VA IRRRL program. This program, known as the VA Interest Rate Reduction Refinance Loan program, enables you to refinance your existing VA loan into a lower interest rate. You do not have to verify anything that pertains to your income, assets, credit, or even the value of the home. As long as you save money with the new loan because of the lower interest rate, you can use the program.
As far as the occupancy requirements for the VA IRRRL, you do not have to live in the property after you close on the loan. You simply need to verify that you lived in the property when you held the original VA loan but moving forward, you do not have to live there. This means that you could have a VA loan on an investment property.
How the VA Determines Residency
How the VA looks at residency might differ slightly from what you think. While you do have to sign a document stating that you intend to occupy the property, you do not have to live there on a daily basis. In order for VA to consider it your “home,” it must be located within a reasonable distance from your place of employment. If you travel for work, however, you do not have to be present at the home a majority of the time. As long as you can prove that you do not own any other properties that you use as your primary residence, you can claim residency at the home you used the VA funding to purchase.
As you can see, you can purchase a rental property with a VA loan, as long as you occupy one of the units. You can also use the VA IRRRL to refinance into another VA loan and rent the property to someone else. A single family purchase as a rental home is not a possibility, however, and you must always be able to prove that you occupy the property as your primary residence even after you close on the loan.
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