Can I Rent Out a Home Purchased with a VA Loan?
VA borrowers can use their military benefits to buy a home. But many borrowers wonder if they can live in the home for a year and then rent it out to tenants as a second income.
Let’s take a look at the possibility of renting your home with a VA loan.
As a Veteran or active-duty member, it is possible to rent out your home with a VA loan. However, there are a number of rules and regulations that govern occupancy and how a VA loan rental property can be used.
VA loans cannot be used to finance an investment property. While these loans are strictly for primary residences, there are several ways to generate income from a VA-financed property. Borrowers can rent extra space in their primary residence, such as a bedroom or guest house. You can also use a VA loan to purchase a duplex, triplex, quadplex, or multifamily home as long as one of those units is your primary residence.
If you plan to finance a new home with a VA loan, you're legally required to follow the occupancy rules set by the Department of Veterans Affairs.
Keep in mind that the VA may allow exceptions to occupancy rules, particularly if you're unable to move due to a military deployment or temporary duty station. Reach out to your loan officer to ensure you are on the right path to gaining an occupancy exception.
As mentioned above, there are a number of exceptions to VA occupancy requirements. The Department of Veterans Affairs is well aware of the fact that many military members will not be able to move into a new home within 60 days. They also know that many active duty members will not be able to stay in the home for a full year due to the requirements of their military service.
Common exceptions to VA occupancy rules include:
If you know your retirement date, you may choose to buy a home months, or even a year prior to your final day of duty. Make sure to talk to your VA lender about your retirement plan before applying for a VA loan.
The VA may make an exception if the potential property needs renovations or repairs to be livable, even if the rehab project takes longer than 60 days.
If your service regularly calls you away, or you have other work responsibilities that keep you out of town, you can file for an "intermittent occupancy exception" with the VA. The borrower must have a history of consistent residence in the area and no indications of a current primary residence to qualify for this exception.
If your spouse plans to live in the home while you're away on deployment, the VA will often make an exception. It’s important to note that VA lenders consider the cost of the couple’s separate living situation for this exception. This means any rental costs or expenses will be factored into the borrower’s debt-to-income ratio.
Another exception applies to borrowers that refinance with a VA Interest Rate Reduction Refinance Loan, also known as a Streamline Refinance. Under that program, the lender will probably not require an occupancy certification.
Rather, they'll ask you to certify that you've used the property as your primary residence for at least a year. This means that you do have the option of refinancing a home using IRRRL- even if you're currently renting it out to a tenant.
If you have an issue not covered above, it never hurts to ask your VA lender. Reach out to your loan officer to explain your situation.
If you've recently refinanced your home with a VA loan, your options for renting may be limited. It all depends on the type of VA refinance you used.
The VA offers two different loan refinance options:
When you refinance with a VA Cash-Out Refinance, it replaces your existing loan with a VA loan. You can also use a VA Cash-Out Refi to tap into your home's equity.
It’s important to note that if you do refinance with a cash-out, you’re required to occupy the home for another year based on VA occupancy rules.
You can also opt for a Streamline Refinance loan that replaces your current VA loan with a new VA loan. You might choose this option to get a lower monthly payment or lower interest rate.
Under the IRRRL loan program, you don't need to worry about the VA occupancy requirement. You can even refinance with a VA Interest Rate Reduction Refinance Loan while you have a current tenant in the home.
Borrowers can keep and rent out their home before purchasing a new property. Keep in mind that while it is possible to have two homes at the same time using your VA loan benefit, your zero-down purchase power may be impacted if you don't have enough entitlement.
VA loan entitlement offers Veterans a significant advantage during the homebuying process since the VA guaranty acts similarly to a mortgage insurance policy. It’s important that borrowers understand how renting their home can affect VA entitlement.
A Veteran that plans to keep VA financing in place for a previous property will not be able to use the full value of their VA loan entitlement. Some of that entitlement will remain attached to the old home, and buyers in this situation might be asked to make a down payment for their next home purchase.
To determine what you can do in your specific situation, take a look at your VA Certificate of Eligibility (COE). Where you choose to buy a property may also factor into your entitlement status. VA loan limits do not currently apply to borrowers with their full entitlements, but they still play a major role in deciding your remaining entitlement and the amount you can borrow without having to make a down payment.
