VA Loan for Investment Property: Can you use it?

While VA loans are commonly associated with purchasing primary residences, did you know that you can use VA Loan for Investment Property as well?

In this blog post, we will explore the benefits and considerations of using a VA loan for investment property. It helps you to make an informed decision to maximize your investment potential.

Can you use a VA Loan for Investment Property?

Using a VA investment property loan is generally not allowed under the guidelines of the VA loan program. However, there are some exceptions and circumstances where using a VA loan for an investment property may be possible.

Extra Space in Primary Residence

While using a VA loan for an investment property is generally not allowed, there is a potential exception known as the “extra space in primary residence” rule. This exception allows veterans to utilize their VA loan benefits for a property that contains extra living space that can be rented out.

In this exception, you can purchase a home using a VA loan and rent out a portion of the property while still occupying the remaining space as your primary residence. This extra space can include a basement apartment, an accessory dwelling unit (ADU), or a separate living area within the property that can be rented out to generate income.

A 1 – 4 Unit Property

Using a VA loan for a 1-4 unit property is possible under certain conditions. The key requirement is that the borrower must occupy one of the units as their primary residence while renting out the remaining units.

Loan limits set by the VA and the specific guidelines of the VA loan program apply. Rental income from the additional units can be considered in the loan qualification process. It means the borrower is responsible for managing the rental units.

A knowledgeable mortgage professional experienced in VA loans is essential to ensure compliance with program guidelines and eligibility requirements.

VA Loan for Investment Property Entitlement

VA loan entitlement refers to the specific dollar amount the Department of Veterans Affairs guarantees for each eligible borrower.

It represents the portion of the loan that the VA will repay to the lender in the event of default.

The VA’s guarantee encourages lenders to offer more favorable terms and conditions to borrowers.

VA Loans are Assumable Mortgages

VA loans are assumable mortgages. This means that when a homeowner with a VA loan decides to sell their property, the buyer has the option to take over the existing VA loan and assume the mortgage.

This can be advantageous for the buyer if the original loan has a lower interest rate or favorable terms compared to current market conditions.

However, assuming a VA loan still requires the buyer to meet certain eligibility and obtain approval from the lender and the Department of Veterans Affairs. It’s important for both the buyer and seller to understand the process and potential implications before proceeding with a VA loan assumption.

VA Loan for Investment Property: The Basic Entitlement

The basic entitlement for a VA loan is currently set at $36,000. It represents the amount that the Department of Veterans Affairs guarantees for each eligible borrower.

This means that the VA will repay the lender up to 25% of the loan amount in the event of default. However, it’s important to note that this basic entitlement amount does not limit the loan amount that veterans can borrow.

The VA actually guarantees a portion of the loan up to the county’s loan limit, which can vary based on location. In high-cost areas, the loan limits can be significantly higher, allowing veterans to borrow more without a down payment.

The specific loan limits and entitlement available to an individual borrower can be determined based on their circumstances and the county they are in.

Loan Limitations and Bonus Entitlement

The bonus entitlement is based on the conforming loan limits set by the Federal Housing Finance Agency for each county. These loan limits can vary depending on the local housing market conditions.

The combination of the basic and bonus entitlements allows veterans to borrow more than the basic entitlement amount. It is up to the county’s loan limit, without making a down payment.

This flexibility can be especially beneficial in areas with higher housing costs. With this veterans can still secure a VA loan with favorable terms and without the need for a significant upfront payment.

What Should You Do If You’ve Already Purchased A Home With A VA Loan?

If you’ve already purchased a home with a VA loan, you have several options. You can consider refinancing to potentially lower your interest rate or monthly payments.

If your property has gained value, you may explore a cash-out refinance or a home equity line of credit (HELOC) to access funds. Renting out the property or selling it are also options to consider.

It’s important to assess your specific situation and consult with a financial advisor or VA-approved lender to determine the best course of action based on your goals and circumstances.

Conclusion

Using VA loan for investment property is not allowed as VA loans are intended for primary residences. Although you can rent out a room or even an entire guest house, you must really reside there in order to comply with VA requirements.

Frequently Asked Questions

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