• Mortgages
    Compare Lenders
    • Mortgage rates
    • Refinance rates
    • Home equity loan rates
    • Mortgage lender reviews
    Use Calculators
    • Mortgage calculator
    • How much house can you afford?
    • Mortgage refinance calculator
    • Mortgage payment calculator
    • Amortization calculator
    • All home equity calculators
    • All mortgage calculators
    Get Advice
    • Reverse mortgages
    • Reasons to use home equity
    • Buying a home
    • Refinance your mortgage
    • First-time homebuyer tips
    • FHA loans
  • Banking
    Compare Accounts
    • CD rates
    • Savings accounts
    • Money market accounts
    • Checking accounts
    • Bank ratings
    Use Calculators
    • Savings calculator
    • CD calculator
    • Compound savings calculator
    • All banking calculators
    Get Advice
    • Money market account vs. savings account
    • Prime rate
    • Credit union basics
  • Credit Cards
    Compare Cards
    • 0 interest credit cards
    • Airline credit cards
    • Balance transfer credit cards
    • Business credit cards
    • Cash-back credit cards
    • Rewards credit cards
    • Credit card reviews
    Use Calculators
    • Credit card payoff calculator
    • Balance transfer calculator
    • Credit card consolidation calculator
    • All credit card calculators
    Get Advice
    • Getting a secured credit card
    • Balance transfer pros and cons
    • Credit card fraud protection
    • Manage your credit
    Best Offers
    • Best credit cards of 2018
    • Best reward cards
    • Best travel credit cards
    • Best balance transfer credit cards
    • Best cash-back credit cards
    • Best student credit cards
    • Best business credit cards
  • Auto
    Compare Lenders
    • Auto loan rates
    • Auto refinancing rates
    Use Calculators
    • Auto loan calculator
    • Auto loan payoff calculator
    • Auto refinance calculator
    • Auto lease calculator
    • All auto calculators
    Get Advice
    • Refinance your auto loan
    • Car loans guide
    • Auto loans for bad credit
    • Best time to buy a car
    • Auto lease buyout
    • Leasing a car
    • Auto loan resources
  • Loans
    Compare Lenders
    • Personal loans
    • Personal loans for debt consolidation
    • Personal loans for bad credit
    • Home improvement loans
    • Student loans
    Use Calculators
    • Loan calculator
    • Loan payment calculator
    • Personal loan calculator
    • Student loan calculator
    • All loan calculators
    Get Advice
    • Personal Loans Guide
    • How to get a personal loan
    • Where to get a personal loan
    • Refinancing a personal loan
    • Refinance student loans
    • Personal loan origination fees
    • Secured vs. unsecured personal loans
    • Personal loan resources
  • Investing
    Compare
    • IRA CD rates
    • Brokerage accounts
    Use Calculators
    • Investment calculator
    • Annuity calculator
    • 401(K) calculator
    • Roth IRA calculator
    • All retirement calculators
    • All investing calculators
    Get Advice
    • Creating passive income
    • Mutual fund vs. ETF
    • Roth IRA vs. traditional IRA
    • What type of CD is best?
    • IRA basics
  • Personal Finance
    Compare
    • Current interest rates
    • Compare rates
    Use Calculators
    • Debt consolidation calculator
    • Net worth calculator
    • Personal finance calculators
    • Cost of living calculator
    • All calculators
    Get Advice
    • Retirement advice
    • Debt management
    • Improve your credit score
    • Career resources
    • Tax advice
    • Insurance basics
    • Real estate tips
    • Personal finance glossary
  • Free credit report
  • myBankrate
open
Share

Using a VA home loan to buy rental properties

Dana Dratch
March 20, 2017  in  Mortgages

1 of 10

Buy rental properties with a VA loan? | Caiaimage/Martin Barraud/OJO+/Getty Images
Buying rental properties with a VA loan

Caiaimage/Martin Barraud/OJO+/Getty Images

Members of the armed forces don’t shrink from a challenge. Which may explain why more of them own rental properties.

Nine percent of U.S. homeowners have investment homes, according to a National Association of Realtors study. But that jumps to 16 percent among owners on active duty in the military.

A lower-cost VA home loan — backed by the U.S. Department of Veterans Affairs — might help a service member or veteran who’s considering joining the ranks of rental property owners. Here are nine things to know about VA mortgages and investment homes.

The Bankrate Daily

2 of 10

The restrictions can be major | Susan Law Cain/Shutterstock.com
The restrictions can be major

Susan Law Cain/Shutterstock.com

The ability to use a VA loan to purchase rental properties is not unlimited.

In fact, a would-be borrower needs to understand that it can be done only in these situations:

  • If the home is a duplex, triplex or fourplex, and the service member plans to live on-site.
  • If it’s a single-family home with an apartment that can be rented.
  • If it’s a home that the enlisted person lives in for a time, then elects to rent out after a move or (more likely) a transfer.

3 of 10

You need to compare loans, lenders, agents | racorn/Shutterstock.com
You need to compare loans, lenders, agents

racorn/Shutterstock.com

As with any mortgage, VA loan rates, fees and terms can vary widely from one lender to another.

That’s something Grant Moon, a veteran and reservist, wishes someone had told him when he used VA mortgages to acquire his two rental homes.

A vet or service member who doesn’t shop around “could end up paying tens of thousands more over the life of the loan,” says Moon, the founder and CEO of VA Loan Captain.

His advice is to get loan estimates from at least three to five lenders. And, shop around for an agent who understands the program, is a good communicator and can strongly advocate on your behalf.

4 of 10

Condition is key | Ben Parker/Shutterstock.com
Condition is key

Ben Parker/Shutterstock.com

When shopping for a rental property, skip the fixer-uppers if you’re going to use VA financing.

The reason: VA mortgages require special appraisals that put a premium on the home being safe, clean and in good working order.

It makes sense from an investment perspective, says Jim Danis, president of Residential Mortgage Corp. in Fayetteville, North Carolina.

A property in good shape means “that much less money out of pocket,” he says.

Some sellers dislike VA financing because they perceive that the VA appraisals will undervalue their homes or drag out the closing process. But VA loan closings average just two days longer than other home-purchase closings, according to mortgage software giant Ellie Mae

5 of 10

Tenants may be uncomfortably close | Iakov Filimonov/Shutterstock.com
Tenants may be uncomfortably close

Iakov Filimonov/Shutterstock.com

Buying rental property with a VA loan often means you’ll be an on-site landlord. Can you handle that?

“If you have your tenants living right next door to you,” says Danis, “they have nonstop access to you every time they have a complaint.”

But the closeness also can be a good thing. “If you’re on-site every day, you’re not going to have any surprises,” he says.

6 of 10

You may want to think rental when you buy | NadyaEugene/Shutterstock.com
You may want to think rental when you buy

NadyaEugene/Shutterstock.com

If you’re in the military or are a veteran and aren’t necessarily in the market for rental property, maybe you should be. A VA mortgage loan offers the possibility of renting out your home when you move or are transferred, so you may want to think of the rental potential of any home you buy.

Scout out smaller, single-family homes in neighborhoods with desirable school districts, says Elizabeth Colegrove, a military spouse who runs the website The Reluctant Landlord. She says those houses are easier to rent.

“If you’re in the right neighborhood, people will take a 1980s bathroom,” Colegrove says.

Research the local rental market, too. Are rents going up or down? Are people eagerly moving into or fleeing the area?

7 of 10

You can't count tenant rent toward income | Wayne Barrett & Anne MacKay/Shutterstock.com
You can’t count tenant rent toward income

Wayne Barrett & Anne MacKay/Shutterstock.com

To get a VA loan for a multifamily building or a home with an apartment attached, the numbers have to work without factoring in tenant rent.

Applicants “have to qualify on standing income alone,” says Kevin Parker, assistant vice president of field mortgage operations for Navy Federal Credit Union.  

The lender wants to be sure that you’ll be able to make those payments every month with or without renters.

8 of 10

Stuff will happen | ND700/Shuttestock.com
Stuff will happen

ND700/Shuttestock.com

With rental properties, things can go wrong. Sometimes in clusters.

“My horror stories came within the first year,” recalls Moon, of VA Loan Captain. One tenant moved in, paid rent for a couple of months, then just stopped. That same year, roofing repairs cost Moon $10,000.

“If you’ve never been a landlord, it will be quite the experience,” he says.

Prepare for problems by saving as much money as you can. If a tenant moves out, the home needs repairs or you get transferred and want to hire a management company, you’re covered.

One of the attractive features of a VA loan is that you’re not required to make a down payment. So, if you’re planning on being a landlord, “keep that money in your reserves,” Moon advises.

9 of 10

You'll need to vet management companies | Dragon Images/Shutterstock.com
You’ll need to vet management companies

Dragon Images/Shutterstock.com

For any active-duty service member, the question isn’t so much if a transfer will come as when. You need to have a plan in place for your rental property.

“If you’re active duty and you get transferred out of state, you’ll need a rental company to manage it for you.” says Danis, of Residential Mortgage. From a distance, “it’s almost impossible to manage it yourself.”

MMoon recommends vetting at least three different management companies — preferably long before you ever need them.

“The standard (fee) is 7 to 10 percent of the monthly rent roll,” he says. “Yes, you’re giving up a chunk. (But) it’s the difference between eating well and sleeping well.”

10 of 10

Consider the loss of VA loan 'entitlement' | dotshock/Shutterstock.com
Consider the loss of VA loan ‘entitlement’

dotshock/Shutterstock.com

When using a VA loan for investment property, you need to ask yourself: Is it worth giving up part of your mortgage entitlement?

How it works: If you’re eligible for a VA mortgage, you’re assigned a set amount — called an “entitlement” — which can be as high as $106,025 in most parts of the country. Each time you buy a home, the VA insures 25 percent of the purchase, and that amount is subtracted from your entitlement.

Once the entitlement is used up — on one property or over several — you’ll have to rely on non-VA financing for any subsequent mortgage or refinancing.

Or, you can regain a portion of your entitlement by selling a property and repaying its VA loan.

Want to learn more about how to qualify for a VA mortgage? Here are five things you should know.

Related Links:
  • Best and worst ways to use a reverse mortgage loan
  • You don’t have to make a down payment on a VA loan. Should you anyway?
  • Mortgage rates dip to 2017 low, but homebuyers sit on the sidelines
Related Articles:
  • No-down-payment mortgages
  • 7 facts about FHA loans
  • 5 facts about VA loans

You may also like

  • 7 crucial facts about FHA loans

  • Mortgages that require no down payment

  • Foreclosed homes -- 5 tips for buying

  • Can seller back out of home sale contract?

  • 9 grants and programs to help you buy your first home

  • 5 first-time homebuyer mistakes to avoid

Related Articles

  • 5 things to know about getting a VA loan

  • 7 VA home loan tips for military women

  • Which mortgage is right for you? Comparing conventional, FHA and VA loans

  • Getting a VA loan for a short sale

  • Find out: What is a VA loan?

  • About Us
  • Press Room
  • Affiliate Center
  • Contact Us
  • Careers
  • Advertise With Us
  • Latest News
  • Popular Topics
  • Glossary
  • Compare Rates
  • Understand Bankrate's Averages
  • Privacy Policy / Your California Privacy Rights
  • Terms of Use
  • Licenses
  • Sitemap
How we make money

Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.

© 2018 Bankrate, LLC All Rights Reserved.

Maximize Your Money. Get Expert Advice & Tools. Master Life's Financial Journey.

You have money questions. Bankrate has answers. Our experts have been helping you master your money for four decades.

Our tools, rates and advice help no matter where you are on life’s financial journey.

Follow Us