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A low-cost home loan backed by the U.S. Department of Veterans Affairs (VA) — also called a VA home loan — is more than just a way for Veterans to afford homes. VA loans allow Veterans, active-duty personnel, and surviving spouses to buy homes with no money down and low mortgage rates.
VA loans can also be used to buy rental property. The main requirement is that you must intend to live in the property as your primary residence.
Step 1: Qualify For a VA Loan
The VA loan program exists to support Veterans, service members, and eligible surviving spouses in achieving homeownership by offering favorable loan terms. It’s a way to recognize and support their service to the country by providing access to affordable home financing options.
The VA sets the eligibility requirements for VA loans, while individual lenders set the financial standards.
VA Loan Eligibility Requirements
To qualify for a VA loan, individuals must meet at least one of the following criteria:
| Who Is Eligible for a VA Loan? | |
| Veterans | Who served on active duty for 90 consecutive days during wartime or 181 days during peacetime and were discharged under conditions other than dishonorable. |
| Active Duty Service Members | Who served at least 90 consecutive days during wartime or 181 days during peacetime. |
| Reservists and National Guard Members | With at least 6 years of service or 90 days (with at least 30 days being consecutive) under Title 32 orders. |
| Surviving Spouses | Whose active duty spouse died in the line of duty, is missing in action, is a prisoner of war, or died as a result of a service-related disability. |
Once you’ve confirmed that you meet the eligibility requirement for a VA loan, you must obtain a Certificate of Eligibility (COE). A COE confirms your VA loan eligibility to lenders you apply with.
You can get your COE through a lender during the loan application, online via the VA’s eBenefits portal, or by mailing VA Form 26-1880 to the VA Eligibility Center.
VA Loan Financial Requirements
VA loans are known for having a 0% down payment requirement and more lenient qualifications than conventional loans. The 0% down payment is possible in part because the VA insures 25% percent of the loan to lenders if the borrower defaults.
Remember, the VA doesn’t set financial requirements for or make VA loans, so you will have to qualify through individual lenders.
While there are no official requirements, lenders generally use the following benchmarks to determine financial eligibility:
- Income – You need a stable income (typically two years of consistent employment history) that covers your monthly expenses and the proposed mortgage payment.
- Credit Score – While the VA doesn’t set a minimum credit score, most lenders prefer a score of at least 620.
- Debt-to-Income (DTI) Ratio – Lenders evaluate your DTI ratio, which compares your monthly debt payments to your gross monthly income. DTI guidelines can vary by lender and other factors. Veterans with a DTI above 41% need to meet additional guidelines.
Once you have verified your eligibility for a VA loan, you can begin looking at properties to turn into an investment property.
Using Rental Income to Qualify for a VA Loan
If you already have investment properties, you may be able to use the rental income when qualifying for a va loan.
The rules around using rental income to qualify for a VA loan will vary by lender. It is common for lenders to allow potential borrowers to count 75% of rental income towards a new mortgage if they have hosted renters for a minimum amount of time. Some lenders may require several years of rental history on your taxes in order to count the income toward your new home loan.
However, if you are unable or unwilling to rent out your current property, it may be challenging to find lenders who will count the potential future income generated from the property when determining how much house you can afford.
Step #2: Find an Investment Property
VA loans have occupancy rules because they are intended to be used as primary residences.
Other than the main requirement that the service member must intend to live on the property, there are a few other conditions when using a VA loan to buy rental property:
- You typically must occupy the property within 60 days
- You can use a VA loan to purchase a single-unit home, duplex, triplex, or fourplex
- You may need to live in the home for a set time in order to satisfy lender requirements
The home you purchase also must satisfy certain requirements set by the VA.
VA Loan Rental Property Requirements
Any property purchased with a VA loan must undergo a VA Appraisal. The VA Appraisal process involves a qualified appraiser assessing the property’s value (to ensure that it aligns with the list value) and basic safety conditions.
The VA sets Minimum Property Requirements (MPRs) that appraisers use to ensure that the home meets certain safety, soundness, and habitability criteria.
Some of the basic property standards that the VA requires include:
- Safe Living Conditions: The property must provide safe and sanitary living conditions.
- Structural Integrity: The home should be structurally sound and free from significant defects.
- Mechanical Systems: Mechanical systems (heating, plumbing, electrical) must be in good working order.
- Roof Condition: The roof should be in good condition with no active leaks.
- Safe Water Supply: The property must have a safe and adequate water supply.
- Sanitary Facilities: The property should have sanitary facilities, including a functioning bathroom.
- Safe Electrical Systems: The electrical systems must be safe and up to code.
- Accessibility: The property should be easily accessible from a public or private street.
- Adequate Space and Privacy: The property should provide adequate space for living and privacy.
- Termite Inspection: In certain regions, a termite inspection may be required.
If the property requires repairs to meet the MPRs, buyers can ask the seller to pay for them or even cover the cost themselves. Negotiations are also a possibility if the home appraises for less than the listing price.
Either way, an approved VA Appraisal is necessary for lenders to approve your VA loan.
» MORE: See today’s refinance rates
Step #3: Consider What’s Next
VA loans aren’t meant for buying a host of investment properties. But it is possible to have multiple VA loans at the same time, and some Veterans do wind up using their benefit to acquire more than one investment property.
If you are content house-hacking with a VA loan, you can continue residing in your multi-unit home. However, if you want the multi-unit property to be used solely for investment purposes, there are a few things to remember.
Entitlement
After living in the home for a time, you can look for a new home to move into and rent out the unit you were staying in in the multi-unit property. Generally, you can use another VA loan to purchase your new home. But buyers should beware: Your homebuying benefit only goes so far. VA loans have “entitlement,” which restricts buyers from going out and accumulating many investment properties with the 0% down payment benefit.
You use some or possibly all of your entitlement when you buy a home. Unless you repay the loan in full, whatever entitlement you used stays tied up in that property. So, if you want to buy again, the amount of home you can purchase without putting a down payment is limited.
So, if you want to buy a second home with a VA loan, you might have to make a down payment on the new one unless you sell your investment property. It’s also possible you don’t have enough entitlement left to get a VA loan at all. Otherwise, you can buy a new home with a conventional, USDA, or FHA loan.
Refinance
Another option is to refinance your multi-unit home with a conventional or other loan type that does not require occupancy rules and then buy a new property using the VA loan.
Refinancing into a new loan type will pay off your first VA loan and restore your entitlement, so you won’t have to worry about potentially making a down payment on your new home. Generally, though, you can only restore your entitlement like this one time.
Just keep in mind that refinancing can include closing fees and appraisal expenses. And if interest rates have increased since you secured your original mortgage, the refinance may not make sense.