Can I Use a VA Loan to Buy an Investment Property?

Can I use a VA loan to buy an investment property?

Everyone talks about house hacking these days. They’re right to do so, it’s a smart way to build long-term wealth using the power of leverage coupled with tenants helping you pay down debt and experiencing equity growth through appreciation. Now, for veterans or active members of the military, they have another super tool in their belt which is the VA home loan. The option to get a home with $0 down is unrivaled.

Can you combine these tools and truly benefit? Yes, with some nuance. The critical factor is making sure you live in one of the units as your primary residence and the building is 4-units (quadplex) or less.

Now, let’s fast-forward your real estate journey a year or more. You bought a quad or triplex on that first purchase, lived in it while renting the other units out. You get orders to PCS, or separate, or you’re already out of the Service and you’re moving for a new job. You can use your VA home loan more than once so long as you’re able to make the monthly payments and you haven’t used all of your VA entitlement. Buy another small multi-family property that’s slightly better in terms of size, location, or fewer units to repeat the process. In many areas, you may also qualify to carry two VA loans simultaneously if you have sufficient remaining entitlement. Call me before assuming you need to wait on the next purchase.

A few things to keep in mind:

• You want to start at the “small-end” of the spectrum for primary homes. Meaning the personal space you have is the least “desirable.” A quadplex is less desirable than a duplex because you likely have a smaller unit in square footage space and you have more neighbors. Moving to a duplex next is an improvement. Fewer neighbors, likely more living space for you. When you apply for your next VA loan, underwriters will ask whether it’s reasonable for you to occupy the new property. Moving from a quadplex to a duplex is a logical upgrade they’ll accept without pushback.

  • Occupancy – most lenders want to see you move into the home within 60-days of closing

  • Future rental – most lenders like seeing 12-months of performance to give you full credit for the rental income when computing your debt-to-income
• Recycle– After the first property appreciates or performs well as a rental, consider refinancing out of the VA home loan into a DSCR or other loan product to restore your VA benefit. This is how you can re-use your VA benefit a third or fourth time.
• Married to a service member or veteran and close to having no remaining VA benefit? Use 1 benefit for the first purchase and the other member’s benefit for the next year.
• One cost to factor in: the VA funding fee. For a first-time use with no down payment it’s 2.15% of the loan amount. On a subsequent use it rises to 3.3%. Veterans with a service-connected disability rating are exempt entirely from the funding fee. If you’re rated 10% or higher, let me know as we discuss your scenario.

  • 2 reasons why this is critical to know: the funding fee is exempted and you get credit for the income you receive from the VA. I’ve seen borrowers forget to report disability income from the VA and have to chase a refund of the funding fee at closing or miss out on adding income to their application to qualify to buy a larger property.

Ready to see how to use the VA home loan to build wealth in real estate through investing over time? Let’s dig into the numbers together, verify, and move out.