Veterans of the armed forces qualify for some great benefits in exchange for serving the United States. One of those benefits is the opportunity to receive a government-backed mortgage, known as a VA loan, to help buy a new home for their family. But what if you’re a veteran who has bigger plans and wants to become a real estate investor? Do you need to live in a property before renting it out? If so, how long do you have to live in a house purchased with a VA loan before you can rent it out?

You won’t have to live in the home at all if you’re able to stay in good standing with your lender. You’re not supposed to use VA loans for investment properties, but, I’ve found that as long as you keep your mortgage payments up-to-date, there aren’t any roadblocks stopping you from using it to buy a rental property.  The trouble comes if you start missing payments.

But let’s talk about the specifics behind VA loans, particularly what they are and how you can use them. Plus, I’ll give you my thoughts on how I feel lenders are becoming more accustomed to the reality of the market. There are far fewer temper tantrums from them than you think. Let’s dive in.

What is a VA Loan?

A Veteran’s Affairs (VA) loan is a mortgage guaranteed by the United States Department of Veteran’s Affairs. These are issued to veterans who qualify as a “thank you” in exchange for their time serving their country.

VA loans are similar to Small Business Administration (SBA) loans. The Department doesn’t actually issue or fund the mortgage; the mortgages still need to go through traditional lenders like banks and credit unions. However, a VA loan means that the US Government is “vouching” for their veteran.

Having the ability to get a VA loan means getting some sweet perks that other homeowners or real estate investors would kill to get. 

VA loans:

  • Require no down payment
  • Require no mortgage insurance
  • Don’t have prepayment penalties
  • Have lower closing costs
  • Are easier to qualify for than traditional mortgages (so long as you’re a veteran who is considered to be in good standing with the military)

How Many VA Loans Can a Veteran Get?

If you qualify for a VA loan, you may be thinking of using it as a great way to fund your real estate investment business. And it’s true that some veterans have been able to use loopholes to use a VA loan for real estate ventures. These loans are especially useful for getting your first property up and running. But, as with all things too good to be true, there’s a caveat.

Here’s the thing: You can only have one VA loan at a time. The Department of Veteran’s Affairs isn’t particularly interested in becoming your joint venture partner in a real estate empire; VA loans were only meant to ensure that veterans come back to a home of their own. 

Now, as I said before, there is a loophole that can be used. While you can only get one loan, that does not mean you only get one shot forever. Once that loan is paid off, you’re then eligible to apply for a new loan. So if you play it smart and scale your business to the point that your VA loan can be paid back, you’ll be able to apply for another one quickly. 

How Long Do You Have to Live in a House with a VA Loan Before You Can Rent It?

Some investors think of using this loophole to get a VA loan to buy rental properties. The theory is that the rent can go towards paying off that loan and funding further ventures. But can you actually use VA loans for this?

Truthfully, I don’t know. The intricacies that these types of loans come with change so often that it’s hard to give a definitive answer that will be accurate no matter when you’re reading this. 

That said, in the end, it doesn’t really matter. You see, there is the technical side and the reality side to this. Let’s discuss the difference.

Technically

Any lender who deals with VA loans will have some sort of clause or affidavit stating that you intend to occupy the property which this mortgage will be going toward. Again, the original intention of VA loans was to give veterans a chance to become homeowners with as few barriers as possible. 

So technically, no, you cannot use VA loans for any sort of real estate investment.

Reality

Let me start with: I am not a lawyer. And frankly, your lawyer would probably tell you not to read any more of this article.

But let’s talk about the reality of the situation: Lenders and the VA don’t have the time, budget, or inclination to be policing these mortgaged properties. The chances that they’ll do a check on who is living in the home is unlikely. It’s not 100% guaranteed that you’d be in the clear, though, so don’t start saying, “Ryan said it was cool.”

The truth of the matter is that lenders care about one thing: getting their money back. As long as you’re making your monthly payments on time and in full, they don’t have any cause to start digging into the details. 

Banks are also becoming more realistic about the situation and sort of accepting that they’re not in a position to stop you. You can tell this by a new clause appearing in contracts called an “Assignment of Rents.”

Assignment of Rents states that if you do rent out the property and default on your loan, you then forfeit your right to collect rent payments from your tenants. Your tenants will be notified that the bank is now in charge, and all rent should be sent directly to them. If you get behind on your mortgage, VA or otherwise, you’ll have to sign over the right to collect rent to the bank. 

Final Thoughts

Again, I want to reiterate that I am not a lawyer and cannot speak for your lender. But if I were to guess, I would say that all they really want is their money back. If you can ensure that your mortgage is paid on time and in full every month, I cannot see a reason why they’d come after you and shake your government-guaranteed contract in your face.

The risk you take using a VA loan for rental properties is low if you do your homework and get your property occupied quickly. Be sure to do the legwork to vet your potential tenants so that you know you can reliably count on their rent payments to make sure your mortgage is kept in good standing. 

Have you used a VA loan for investment properties? Leave a comment and let us know your tips.