When securing a home loan, military buyers often have the advantage of using their VA home loan guarantee. However, many prospective homeowners have a common question - “Can I use my VA home loan guarantee to purchase investment property?"
At CRI Properties in Jacksonville, NC, we understand military buyers' unique needs and questions. In this comprehensive article, we'll explain the requirements for using VA loans and explore the possibilities and limitations of using them for investment properties.
Understanding VA Loans
A VA loan is a mortgage loan written by a mortgage lender in the United States that is guaranteed by the United States Department of Veterans Affairs (VA). It is designed to offer long-term financing to eligible American veterans or their surviving spouses. One of the major benefits of using a VA home loan guarantee is that the veteran borrower‘s down payment is guaranteed to the lender by the US Department of Veterans Affairs (not paid by the borrower), making homeownership more accessible for those who use this entitlement.
A VA Home Loan Guarantee is an entitlement for eligible participants. This entitlement can be used many times throughout the participants’ lives. In order to re-establish an individual’s ability to re-use this entitlement, the initial home that was purchased using the entitlement must be sold or refinanced with a conventional loan.
Eligibility Requirements for VA Loans
Before addressing the question, "Can I use a VA loan for investment property?" it is crucial to understand the eligibility requirements for VA loans. To qualify for a VA loan, you must meet the following criteria:
1. Service Requirements. Active duty service members, veterans, National Guard members, reservists, and in some cases, their surviving spouses can qualify for a VA home loan guarantee. Consult the Veterans Affairs website to determine your qualification, since minimum service requirements vary depending on when you served and the nature of your service.
2. Certificate of Eligibility (COE). You or your lender will Obtain a Certificate of Eligibility from the VA, which confirms your entitlement to VA home loan benefits.
3. Credit and Income. While the VA does not set a minimum credit score, each lender will have their own requirements. VA standards for debt to income ratios are usually more favorable than those for conventional loans. Veteran purchasers must have sufficient income to cover the mortgage payments and other living expenses.
4. Primary Residence Requirement. The property must be purchased as your primary residence.
Can I Use a VA Loan for Investment Property?
The short answer to "Can I use a VA loan for investment property?" is no, VA loans are not typically designed for investment properties. The primary purpose of VA loans is to provide housing for veterans and their families. However, some strategies could allow you to leverage a VA loan in a way that could benefit investment endeavors.
Occupancy Requirements and Investment Properties
The VA requires that a home purchased with a VA loan must be used as the borrower's primary residence. This occupancy requirement is one of the key reasons why a straightforward "Can I use a VA loan for investment property?" results in a negative response. The borrower must move into the property within a reasonable time, typically 60 days after closing.
Multi-Unit Properties
One way to navigate the "Can I use a VA loan for investment property?" dilemma is by purchasing a multi-unit property. The VA allows borrowers to buy a property with up to four units, provided that the borrower lives in one of the units as their primary residence. The remaining units can then be rented out. This strategy allows veterans to use a VA loan for a property that generates rental income while complying with the primary residence requirement.
Renting Your Home Financed With a VA Loan
Another aspect to consider when asking, "Can I use a VA loan for investment property?" is the possibility that you have purchased your home using a VA Home Loan Guarantee and you find you need to move. In this instance, you can keep your VA loan on your home and use a conventional loan to purchase the new home. Your VA loan can continue on your first home - even though it is now a rental home - and does not need to be converted to a conventional loan. However, if you wish to reuse your VA home loan guarantee to purchase your new home, the current VA loan will have to be paid off - either by selling the first home or by refinancing the loan with a conventional loan.
House Hacking with a VA Loan
House hacking is a popular strategy among real estate investors and can provide an answer to the "Can I use a VA loan for investment property?" question. This strategy involves buying a primary residence and renting out parts of the property to cover mortgage payments and other expenses. For example, you could buy a single-family home with multiple bedrooms and rent out the extra rooms. Alternatively, you could purchase a duplex, triplex, or fourplex, live in one unit, and rent out the others.
Requirements for Using a VA Loan: A Resource for Military Buyers
If you're considering a VA loan and wondering, "Can I use a VA loan for investment property?" it's essential to be well-informed about the requirements and strategies involved. Here are some key points to consider:
1. Primary Residence Requirement:
- The property must be your primary residence.
- You must occupy the home within 60 days of closing.
2. Multi-Unit Properties:
- You can purchase a property with up to four units.
- You must live in one of the units as your primary residence.
3. House Hacking:
- Buy a home and rent out extra rooms or units.
- Helps cover mortgage payments and other expenses.
4. Refinancing Options:
- Use a VA loan to refinance your primary residence.
- Convert the property into an investment property after refinancing.
5. Eligibility and Entitlement:
- Ensure you meet the service requirements and obtain a COE.
- Understand your entitlement benefits and how they apply.
6. Credit and Financial Stability:
- Maintain a good credit score and stable income.
- Be prepared to meet lender-specific requirements.
Benefits of Using a VA Loan
While the primary answer to "Can I use a VA loan for investment property?" is generally no, using a VA loan for your primary residence offers numerous benefits, including:
No Down Payment: VA loans typically do not require a down payment, making homeownership more accessible.
Competitive Interest Rates: VA loans often have lower interest rates compared to conventional loans.
No Private Mortgage Insurance (PMI): VA loans do not require PMI, reducing your monthly mortgage payments.
Flexible Credit Requirements: While individual lenders have their criteria, VA loans generally have more lenient credit and debt to income requirements.
Guidance for VA Loans and More with CRI Properties
So can you use a VA loan for investment property? While VA loans are primarily intended for primary residences, there are strategies to make the most of your VA loan benefits and incorporate them into your investment plans. By purchasing multi-unit properties, utilizing house hacking techniques, and exploring refinancing options, you can leverage your VA loan to support both your homeownership and investment goals.
Located in Jacksonville, NC, CRI Properties is committed to helping military buyers navigate the complexities of VA loans and achieve their real estate objectives. Our team of experienced professionals is here to help if you have any questions about VA loans or need assistance with your home-buying journey. Contact us today to learn more about how you can make the most of your VA loan benefits and explore your options for homeownership and investment in Jacksonville, NC.