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Ultimate Guide to VA Loans for Rental Properties

Saad Dar

Writer and Editor at Baselane 16 February 2022 4 Min Read
Ultimate Guide to VA Loans for Rental Properties

If you’ve served in the military, one of the ways the U.S. Government thanks you for your service is by making it very easy for you to buy a home. They do this by backing a loan called a VA Loan and encouraging their military members to apply. But, what exactly is a VA loan and can you rent out your home once you have one?

1. What is a VA Loan?

A VA Loan is an unconventional mortgage loan backed by the U.S. Department of Veterans Affairs. This loan type makes it possible for active and veteran military service members (and their surviving spouses) to buy a home with little to no down payment, no mortgage insurance, no prepayment penalties and favorable mortgage terms.

The fact that it’s backed by the U.S Government means that the VA will pay for up to 100% of the financing to the lender should the borrower default. The VA also sets the terms of the offered mortgages and sets the standards for qualification, but doesn’t lend the money directly. Instead, they partner with private lenders to give out the money. These private lenders include banks and mortgage companies and the VA guarantee incentivizes these lenders to offer more favorable terms.

While there is no limit to how much an applicant for a VA Loan can borrow, there is a limit to how much the Department of Veterans Affairs will guarantee. As of 2022, it will back a loan up to $647,200 in most counties, guaranteeing 25% for the lender.

The good news is, you don’t need good credit and you can use this VA Loan benefit to finance a home at any time and multiple times throughout your life.

You can only buy rental property with a VA loan if you plan on living in one of the units yourself. If you’re looking to grow your rental property business, or just buy your first rental property, you can check out our loans built for landlords.

2. Who is Eligible for a VA Loan?

Active and veteran military service members as well as their surviving spouses are eligible to apply for a VA loan to purchase a home. However, there are specific eligibility criteria depending on what branch of the military they serve.

National Guards and Reservists

  • Must serve a minimum of six years
  • Those who serve less than six years may still qualify if they’re discharged due to a service-related disability

Active Duty

  • Must be on regular duty (not in training)
  • Have already served 181 days (90 days if during The Gulf War) unless discharged or separated from another period of qualifying active duty

Veterans

  • Have already served 181 days (90 days if during The Gulf War) unless discharged due to a service-related disability
  • Must be honorably discharged

Spouses

  • A spouse of a service member missing in action or a prisoner of war
  • A spouse of a service member who died while in service or due to a service related disability who has not remarried
  • A surviving spouse who remarries after age 57 or on or after December 16, 2003

Additional Requirements

  • Decent credit, income and employment goes a long way towards being approved for 0% down as long as the price of the home doesn’t exceed its appraised value

3. How to Apply for a VA Loan for a Rental Property

While you’ll need to live in one of the units in order to use a VA loan for a rental property, you’ll generally be able to apply for a VA Loan if you follow the steps below.

If you’re looking to start a rental property business as an extra source of income, we can help you manage your property finances with confidence with our analytics tool built for landlords.

  1. Gather the information necessary to acquire your Certificate of Eligibility – Depending on your military status, you’ll need different documents and information to acquire your certificate of eligibility (COE). The certificate tells the lender that you are eligible for the VA Loan Program.
  2. Apply for your COE
  3. You can apply for your COE online through eBenefits, through your lender using Veterans Affairs’ LGY system or you can apply by mail by filling out a request for a COE.
  4. Submit your application to your lender
  5. Depending on the type of loan you want and your lender, you will need to submit specific information at their request along with your application.
  6. Complete a Home Appraisal
  7. The lender will complete an appraisal estimating the market value of the home.
  8. Lender reviews your application with the Home Appraisal
  9. Your lender will review your application, including your credit and income information, and then decide if they will grant you the loan.
  10. Find a Closing Company
  11. If your application is accepted, the lender will work with you to find an entity to handle the closing costs for the home and help you close on the home itself.
FAQs
Can you use a VA loan for a rental property?

You can buy a rental property with a VA Loan as long as you are living in one of the units or somewhere in the home and renting out the basement or the rest of the rooms. You cannot use a VA loan to purchase a home that won’t be your primary residence and is used solely as a rental property.

How long do you have to live in a house with a VA loan before selling it?

You don’t have to live in a home purchased with a VA Loan for a certain amount of time before selling it, but you do have to move into the home you receive within 60 days of buying it. You can move out of your home and buy another one using your remaining VA entitlement through the VA Loan Program once again. You can also keep your first home and buy another one as long as you outgrew your home or your job relocated you.

Can I buy a second home with a VA loan?

Yes. You can buy a second home as long as your job relocates you or you outgrow your first home. You are also entitled to a VA Loan as long as you want, as many times as you want to apply. Just be aware that buying multiple homes may deplete your military entitlement, so on the next house you may have to pay a down payment.

How long do you have to live in a VA loan house before you can rent it out?

There’s no limit to how long you have to remain in a home paid for with a VA Home Loan before renting it out. However, the rental property must remain your primary residence. It cannot be used as a pure rental property without you living there.

Saad Dar

Writer and Editor at Baselane

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