VA loans come with some serious benefits. Backed by the Department of Veterans Affairs, this handy mortgage program has no credit score minimum, requires zero down payment, and offers 100% financing. It's really one of the best loan options out there -- at least for homebuyers.
But what about a real estate investor? Can you use a VA loan for investment property or multi-unit homes? Let's dig in and see.
Yes, you can use a VA loan for investment property -- but…
At its heart, the VA loan program is designed to help veterans and military members afford a home they intend to use as their primary residence. As such, you can't use the program to buy an outright investment property, meaning one you plan to fix and flip right away or one you intend to rent out wholly.
That doesn't bar you from earning money from a VA-financed property entirely, though. To use a VA loan for an investment property, you'll need to meet the following three requirements:
1. You'll need to have military service
To even consider a VA loan, property investors need to be sure they meet the program's military service requirements. That means you (or your spouse if you're co-buying) must be an active military member or veteran.
You also have to have clocked a certain number of days in the military, depending on when you served. The requirements are pretty specific based on whether your service was during wartime or peacetime, so check the charts at VA.gov to make sure you're eligible before going further.
If you ultimately end up applying for a VA home loan, you'll need a Certificate of Eligibility from the Department of Veterans Affairs.
2. You have to live on the property
Ever heard of a strategy called house hacking? That's what you'll need to do in order to use a VA loan for an investment property.
One of the more important requirements of a VA loan is that the borrower uses the home as their primary residence. That means if you plan to use the program to purchase a multifamily property, you'll need to live in one of the units. You'll also have to move into it within 60 days of closing on your loan.
3. Your property can't have more than four single-family units to it
VA loans can only be used on properties with up to four units. If you go above this, your rental property won't qualify for financing. That means duplexes, triplexes, and quadplexes are all fair game. But big apartment complexes? Definitely not.
Using rental income to qualify for a VA home loan
If you and your property meet these requirements and you do plan to rent out some units for extra income, you may be able to use those rents to help you qualify for the loan.
To do this, you'll need to have cash reserves to cover at least six months of mortgage payments and documented experience as a landlord. Meet both those qualifications, and you can collect 75% of rents previously collected on the property or 75% of the rent an appraiser projects you can ask for each unit.
The bottom line
The VA home loan benefit isn't intended for investment real estate, but if you meet the military service requirements, there are ways to use these mortgages to finance up to three rental units in your primary home.
If it turns out you're ineligible for a VA loan, there are lots of other investment property loan options to consider. You might use a conventional mortgage loan, hard money loan, portfolio loan, or an FHA loan if you're willing to live on the property.
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