Can military members buy a home with a VA loan and rent it out to others? VA loan rules can sometimes be difficult to understand without experience or expertise on hand. This is a question that needs further research.
Can Military Members Buy and Rent Out a Home with a VA Loan?
The short answer is “no”, but under certain circumstances, this can change. We will explore these circumstances and how you can legally rent out your home purchased with a VA mortgage loan.
For your information: The VA home loan benefit is offered to veterans and currently serving military members who meet time-in-service requirements (active duty, Guard, Reserve, etc.) Those requirements vary depending on when you joined the military and under what conditions you may have served.
Qualifying For Your VA Home Loan
When you qualify for the VA mortgage, you are permitted to apply for a VA Certificate of Eligibility which establishes you as an eligible VA loan applicant.
Your ability to apply for a VA mortgage should not be confused with the loan approval. All who apply for VA loans must financially qualify the same as with any large line of credit. All VA loan applicants must submit income, employment, and credit qualifying information to be approved for a VA mortgage.
VA Loan approval is offered to those who apply who are also financially qualified. In short, you can qualify to APPLY for the loan, but keep in mind that VA loans are not automatically approved for all applicants.
What VA Loans Can Be Used For
VA home loans can be used to buy, build, improve, or refinance a home intended to be the borrower’s home address, or as the VA Lender’s Handbook says, the “primary residence”. Primary residence requires the owner to live in their homes. Primary residences cannot be a timeshare, vacation home, bed-and-breakfast, etc.
VA Loans can be used to buy properties with as many as four living units. The borrower is also permitted to consider the purchase of a mixed-use or mixed-zoning property as long as the non-residential use of the home does not compromise the residential nature of the property.
If you purchase one-to-four unit real estate with the help of a realtor, broker, or real estate agent, regardless of your intent for the unused living units in your new home, you MUST occupy the property as a condition of loan approval.
What VA Home Loans Cannot Be Used For
In this context, even if the borrower lives on the property secured by the VA mortgage as the primary residence, the property cannot be used to operate an Airbnb, hotel, bed-and-breakfast, or other businesses that have a rental occupancy for 30 days or fewer.
The property MUST be used as a residence, even if there are other commercial interests involved. The residential nature of the home must always come first with a VA home loan. This will play an important part in how the VA loan rules and your lender’s requirements will be used to interpret your intended use of the home, especially if you want to rent to others.
VA Home Loan Rules On Occupancy
Because the VA Lender’s Handbook requires the property purchased with a VA mortgage to be a primary residence, the borrower generally has 60 days (or a “reasonable time” negotiated with the lender) to take ownership and occupy the home after loan closing. The borrower has, at this stage, signed a legally binding agreement stating at least one borrower obligated on the mortgage will do so and use the home as the primary residence.
Renting Your VA Loan Home After Purchase: When It’s Legal To Do So
It is perfectly legal under the terms of your VA home loan for you to purchase a multi-unit home, as long as you move into one of the units when you rent out the other units (assuming your lender does not include legally binding clauses to the contrary.)
It is also legal to purchase a home, move in, and allow others to live with you rent-free if you choose.
You are also free to allow your VA home loan to be assumed by another person if you want to pass financial responsibility for the loan off to another.
Your lender must participate in a VA loan assumption so you will need to have a discussion with your loan officer about how such transactions work.
Renting Your Home After Refinancing with a VA Mortgage
VA home loans are available to refinance homes as well as purchase them. Occupancy rules for VA refinance transactions also include occupancy in MOST cases, but there is one notable exception borrowers should consider.
VA refinance loan rules depend greatly on the nature of the loan. For example, VA cash-out refinance loans permit the borrower to cash-out refinance an existing VA or non-VA mortgage. the type of non-VA mortgage loan you refinance must be for an approved property (real property only, no houseboats, RVs, or mobile homes that will not be fixed to a permanent foundation.)
VA cash-out refinance loans require occupancy the same as new VA loans. Identical rules apply for those who refinance with VA cash-out refi loans. You must certify that you will use the property being refinanced as your primary residence.
VA Streamline Refinance Loans
Military borrowers who want to refinance a home, move out, and rent it out to others have their best option using a VA Streamline Refinance loan, which does not require you to occupy the home as your primary residence, but simply requires you to legally state you HAVE USED the home as your primary residence in the time leading up to the refinance loan. Under the stated terms of your VA home loan for Streamline refinances, you would be free to refinance, move out, and rent to new tenants.
Yes, you read that correctly—the VA does not require you to maintain occupancy in a property refinanced with a VA Streamline loan, which is designed to give the borrower a specific, tangible benefit when refinancing such as a lower interest rate, a lower monthly payment, moving out of an adjustable interest rate loan, etc.
There is a caveat, though.
VA Streamline Refinance loans are ONLY for those with existing VA mortgages. You cannot refinance a non-VA home loan using a VA Streamline refi loan. VA Streamlines feature no VA-required credit check and no VA-required appraisal, which makes them unique among VA refi loans.
The VA Lender’s Handbook On Occupancy
Details on occupancy guidelines may be found in VA Pamphlet 26-7, the VA Lender’s Handbook. It holds a complete list of requirements and more general policies for VA mortgages and occupancy rules.
Federal law requires a VA loan applicant “to certify that he or she intends to personally occupy the property as his or her home.” VA Pamphlet 26-7, Chapter Five states that the date of the certification must be the day the veteran is required to “personally live in the property as his or her home” OR “intend, upon completion of the loan and acquisition of the dwelling, to personally move into the property and use it as his or her home within a reasonable time”.
In the case of VA Streamline Refinance Loans, also known as VA Interest Rate Reduction Refinance Loans (VA IRRRL), the loan requires the borrower to legally certify they have lived on the property they are now renting out. Here is an example from VA Pamphlet 26-7:
“A veteran living in a home purchased with a VA loan is transferred to a duty station overseas. The veteran rents out the home. He/she may refinance the VA loan with an IRRRL based on the previous occupancy of the home.”
Note the statement “the veteran rents out the home” above. In the timeline of the transaction, as described by the VA, the IMPLICATION of the above line is that the veteran did NOT wait to refinance.
Based on other sections of the VA Lender’s Handbook, that line does not offer a direct contradiction to the occupancy requirement, but it does indicate something that the VA may be flexible within guideline interpretations. Unfortunately, the VA Pamphlet 26-7 doesn’t provide more certainty in the subjectivity of occupancy requirements.
Don’t forget that lender requirement, state law, and other variables can also affect what may be permitted when it comes to acting as a landlord whether on-site or off.
It may be best to discuss your financial needs and goals for your refinance and new purchase loan options with a loan officer to see what the best course of action might be depending on your needs for the real estate to be purchased with a VA loan or refinanced with one.
Things You Need To Know About VA Refinance Loan Regulations
VA loan rules are similar to other government-backed mortgage regulations including occupancy requirements like VA mortgages, and similar Streamline Refinance options for FHA-to-FHA refinance loans (e.g., USDA home loans also feature occupancy requirements.)
Some VA occupancy policies may be subject to interpretation. A Veterans Affairs representative indicated by phone that there are some instances that require more information digging. Lenders may need to know the reasons behind refinancing prior to renting out a property. It is not an official decision made by the Department of Veterans Affairs, but it may explain any confusion or delays that may occur.
On paper, VA loan rules seem to be very succinct on the issue of buying and renting as an absent landlord. The legal way to use the home purchased with a VA loan as a rental property you do not live in requires the following steps:
- Buy a home with a VA mortgage
- Move into the property and occupy it as your home
- Refinance the loan with a VA Streamline Refinance (VA-to-VA refinance transactions only)
- Move out of the home and rent it out to a third party
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.
