Can You Buy an Investment Property With a VA Loan?

Like all federally backed loans, the VA loan was created to make a primary residence more affordable. Because of this, you generally cannot use VA loans to purchase an outright investment property. This does not mean you cannot make any income from the property, but it cannot be the primary reason you purchased it. Should your lender discover otherwise, later on, it may recall the loan.

What Is a VA Loan?

This type of mortgage loan was created specifically for qualifying military persons. These include active-duty service members and veterans. The VA determines the additional qualifying factors and issues a certificate of eligibility to confirm to a lender that it will guarantee the loan. This means that if a borrower defaults on the loan, the VA will pay a portion of that back to the lender. This reduces risk to the lender, which makes it easier for military persons to purchase homes.

What Can You Use a VA Loan For?

VA loans are one of the most versatile mortgage loan programs on the market. In fact, purchasing properties is just one of the purposes you can use it for.

• Purchase Mortgage: Use the VA loan to finance a home.
• Renovation and Rehab: Buy a fixer-upper and convert it into the home of your dreams.
• Interest Rate Reduction Refinance Loan: Reduce your interest rate or refinance from an adjustable interest rate.
• Cash-Out Refinance: Convert equity in your home into cold, hard cash.
• Native American Direct Loan: Use this to refinance, purchase or construct a home on federal trust land, if you are a Native American military person.

How Can You Make Money From a VA Loan Property?

Even though you generally cannot use a VA loan to purchase an outright investment property, there are several ways you can use this loan to make money. Note that these are not recommendations, but rather, an acknowledgment of ways military persons have generated incomes using VA loans.

Refinance

In most cases, you can only have one active VA loan at a time. Once you repay or refinance that loan, you may get another VA loan. Service members and veterans often use the loan to buy the home initially, live in the home for two or more years and then refinance the loan using a conventional mortgage. They then purchase another primary residence and rent out the previous property.

Multi-Units

VA loans can be used to purchase multi-unit properties if you occupy one of the units as a primary residence. Veterans sometimes purchase duplexes or quadruplexes and rent out the additional units to generate income. In some cases, they also convert basements or add auxiliary buildings on the property that can be used as short-term rentals.

Home Business

If you purchase property as a residence, using it for commercial purposes can violate the mortgage loan agreement. However, some business activities are generally considered okay at home. These include home offices for working remotely or selling produce grown on a homestead. Be sure to check with the lender and local ordinances to ensure you do not violate property use agreements or local laws.

Why Choose a VA Loan?

For some people, the income restrictions on the property might feel like a deterrent. However, there are some good reasons to consider a VA loan over other options. Most other types of loans require at least 3% down. The VA loan does not. You also do not need mortgage insurance. To add to this, lenders face closing cost restrictions which further help to keep your loan affordable. Finally, studies have also shown that VA loan interest rates tend to be lower than for other mortgage types.

Why Choose National Home Loans as Your Brokers?

Our team is committed to ensuring you have a hassle-free loan experience and a VA loan that fits your budget. As your five-star brokers, we also help qualify you for your future mortgage. We know what lenders are looking for and help you get your affairs in order. We are also always ready to answer any questions you might have. Take a look at our current rates for San Diego VA loans.

Sources:

https://www.nerdwallet.com/article/mortgages/va-home-loan
https://loans.usnews.com/articles/can-you-buy-a-second-home-with-a-va-loan