Renting Out Your VA-Purchased Home

Not everyone's cut out to be a landlord, but for VA borrowers interested in this path, it's more feasible than it might seem. VA loan regulations may appear to prohibit renting, but it is possible to rent out a VA loan-financed property after meeting the occupancy requirement.

You can even use a new VA loan to buy your next home while the first one generates rental income as an investment property.

However, there are specific scenarios where exceptions apply. For instance, if a Veteran purchases a multi-unit property with a VA loan and lives in one of the units, they may rent out the other units immediately, as long as they occupy one of them.

VA Loan Rental Property Basics

One of the biggest advantages of renting out a VA-financed home is that you don't need to refinance your existing VA loan. Keeping it in place means avoiding the closing costs and occupancy requirements that come with a new loan.

However, you will likely need to get a new homeowners insurance policy that reflects the fact that your home is no longer owner-occupied. Without making that change, the insurer could wind up denying any claims you make once you have renters in place.

There are other potential limitations to consider if you plan to keep your old VA loan and obtain a new one, particularly regarding VA loan entitlement.

VA Entitlement and Renting

Veterans keeping their old property under a VA loan should know that they will not have the full reach of their VA loan entitlement when purchasing their next home. A portion of your entitlement gets tied up when you buy a home with a VA loan, and you cannot regain full access until you pay off the loan in full.

Buyers with partial entitlement may need to provide a down payment with their next VA purchase, depending on the loan amount and where they’re purchasing.

Assessing your entitlement status usually requires a look at your Certificate of Eligibility and information about where you plan to purchase. While the VA’s loan limits no longer apply to borrowers with full entitlement, they play a key part in determining your remaining entitlement and how much you can borrow before needing a down payment.

Veterans wanting to avoid a down payment or other limitations can refinance their VA loan, repay the original loan in full and fully restore their VA loan entitlement. But if you’re still planning to hold onto the home you purchased with a VA loan, there’s a catch.

How To Restore Entitlement When Keeping the VA Property

Veterans who want to fully restore their VA loan entitlement while keeping a rental property have one option: the one-time restoration of entitlement, which allows you to repay your VA loan in full without having to sell the home.

Getting your full entitlement back means being able to purchase without a down payment. But invoking the one-time restoration carries an additional consideration: If you ever want to restore any of your entitlement again, you’ll first have to get rid of every property you purchased with a VA loan.

VA Loan Rental Income Guidelines

Generating rental income is one of the biggest draws of converting a VA-financed home into an investment property, but the VA's guidelines on how that income counts toward a new loan are worth understanding before you make the switch.

You might need at least a two-year history of receiving rental income (as documented on your income taxes) to count it as effective income toward mortgage qualification. That’s obviously all but impossible when you’re first looking to convert a primary residence into an investment property.

The good news is that projected rental income could still prove helpful. Some lenders might treat it as an offset, meaning the rental income could cancel out the mortgage payment as a monthly debt.

Generally, this can be an option if you:

• Rent out your old home within a year of vacating it as your primary residence
• Have a renter locked into a long-term lease
• Have sufficient cash reserves

Every buyer's situation is different. A Veterans United VA loan expert can go over all of our rental income guidelines and give you a clear picture of what's possible.

Wrapping Up VA Loans and Rental Property

Using a VA loan to purchase a home and later turning it into a rental property can be a viable financial strategy for Veterans. The potential to earn rental income while preserving your VA loan benefit for a future purchase makes it worth serious consideration.

But it’s important to go in with a clear picture of the occupancy requirements, entitlement implications and rental income guidelines involved before proceeding with this investment route.

Connect with a Veterans United VA loan expert if you have questions about navigating VA loans and rental property.