Can You Rent Your House if You Have a VA Loan?
VA loans finance primary residences and not rental properties. So what happens when you get deployed or retire and decide to move? Do you have to sell your VA-financed home so you can buy another one?
No. Borrowers can keep their current home and buy a new home elsewhere. You could even rent out your current home to help pay for your new home.
There will be rules to follow. For example, you’ll need enough remaining entitlement to insure a second VA loan. And your VA funding fee may be higher for your second VA loan. We’ll explore all the details in this post.
What VA loans can be used for
The VA wants its mortgage program to help veterans and active-duty military members buy their own single-family homes to live in.
That’s why the program offers such attractive benefits which make home buying easier. VA-approved lenders can offer competitive mortgage rates, require no down payment and charge no ongoing mortgage insurance premiums.
Because of these benefits — which conventional and FHA loans cannot offer — the VA home buying process requires buyers to certify they’ll live in the new home full time.
This doesn’t mean you have to buy a single-family home, though. You could buy a duplex — or even two duplexes on the same piece of property — as long as you agree to use one of the units as your primary residence.
What VA loans cannot be used for
Veterans cannot use their VA home loan benefits to buy investment properties, second homes or vacation homes. Conventional loans, which are not backed by a government agency, exist for this purpose.
However, these VA loan rules apply only to the home you’re buying. They don’t always apply to a home you already own, even if you used a VA loan to buy it.
So, if you already own a VA-financed home and need to buy another home, you can still use the VA home loan program — as long as you’ll be using the new home as your primary residence.
VA home loan occupancy rules
When you finance your new home with a VA home loan, you’ll have to follow the loan’s occupancy rules.
- Moving in: You’ll agree to move into the new home within 60 days of closing on the loan
- Staying: Most VA-authorized lenders will require you to live in the home for at least 12 months
If you need an exception to the occupancy rules — especially if you can’t move in within 60 days because of a deployment or temporary duty station — let your loan officer know. The VA will typically allow exceptions.
VA occupancy requirement exceptions
The Department of Veterans Affairs knows that some military service members and veterans will need more than 60 days to move into their new home. The agency knows some vets may not be able to live in the home for a full year after closing.
The VA will allow exceptions to its occupancy rules if:
- You’re retiring: Retiring service members may want to buy a home several months, or even a year, before their retirement date
- The home needs work: If the home needs property repairs or improvements that will take longer than 60 days to complete, the VA can make an exception
- You work out of town: If you’re away from home for work, you can file for an intermittent occupancy exception
- Your spouse will live there full time: If your spouse will use the home while you’re deployed, the VA can make an exception
- Unusual circumstances: If there’s another reason you can’t move in within 60 days or stay for a year, let your loan officer know
There’s another exception to occupancy requirements, and it can be a helpful one. If you refinance with a VA Interest Rate Reduction Refinance Loan (IRRRL) — also known as a Streamline Refinance — your lender shouldn’t require an occupancy certification.
Instead, you’ll certify that you have used the home as a primary residence for at least a year in the past. As a result, you could refinance a home using the IRRRL while you’re renting it out to a tenant.
Renting your home after a VA purchase
Let’s say you bought a VA-financed home in San Diego but will be spending the next three years at Pearl Harbor, Hawaii.
If you’ve already lived in your San Diego home as a primary residence for a year, you could rent it out while also using another VA loan to buy a new home in Hawaii. If you haven’t lived in the San Diego home for a year, you could ask the VA for an exception to its occupancy rule.
However, the VA can limit the size of your second home loan. VA loan limits no longer apply to first-time VA borrowers, but they can apply if you’re already using your VA loan benefit.
And, keep in mind that, regardless of the VA’s loan limits, your lender will limit your loan amount based on your credit score, other debts, and personal finance details.
Renting your home after a VA refinance
If you’ve recently refinanced your home using a VA loan, it may be too soon to rent it out, depending on which type of refinance you used.
The VA offers two kinds of refinance loans:
- VA cash-out refinance: This loan replaces any type of loan, including FHA and conventional loans, with a VA loan. It can also help homeowners borrow against their home equity
- VA Interest Rate Reduction Refinance Loan (IRRRL): This Streamline Refinance loan replaces a VA loan with a new VA loan that offers an advantage such as a lower interest rate or a lower monthly payment
When you refinance with the VA cash-out refi, you’ll need to occupy the home for at least another year, based on the VA’s occupancy rules.
With an IRRRL, you won’t be subject to the occupancy requirement. In fact, you could refinance with an IRRRL while you have a tenant living in the home.
VA loans: 5 things to know about renting out your home
It is possible to rent out your VA-financed home while simultaneously buying a second home through the VA home loan program. But there are limits to know about, such as loan limits and the occupancy rules we’ve already discussed.
Here are five things to know if you’re thinking about renting out your VA loan-financed home.
1. You don’t have to refinance
It’s a common misconception. Because the VA IRRRL program does not include an occupancy requirement, some homeowners think they can get around the occupancy rules by refinancing.
Others think they’d need to refinance out of the VA loan program altogether before renting out their home.
You don’t need to do that. In fact, you should refinance only when your new loan saves money or is better for your personal finances in some other way.
Simply living in the home for a year — or asking the VA for an exception — can solve the residency dilemma.
2. It may reduce your entitlement
The VA no longer limits the size of your first loan. But loan limits do apply to subsequent uses of your VA loan benefit.
The VA will set a maximum size for your second loan. It will base your new loan amount on the size of your first loan and your location. (Areas with expensive real estate allow larger loan amounts.)
You can exceed the VA’s loan limit on your second VA loan, but only if the lender agrees and if you’re willing and able to make a down payment.
3. You can restore your entitlement
Homeowners who have paid off their VA-backed home loan can restore their full entitlement and borrow again with no loan limits.
This restoration does not happen automatically. Ask your loan officer or your contact at the VA to help restore your full borrowing power if you’ve recently paid off a loan.
4. You may need new a homeowners insurance policy
Home insurance companies offer policies that are designed specifically for investment property owners. The policy you have on a primary residence may not be enough to cover your liabilities as a landlord.
So be sure to check with your insurer as you transition from homeownership to property manager. Also, be sure to encourage — or require — your tenants to get their own renters insurance policies.
5. It can be tricky to document rental income
Tax season is more complicated for landlords. If you start earning income by renting your home, you’ll need to learn about the tax implications before you start to file next year’s taxes. A professional tax preparer can be an invaluable ally.
If you’re documenting rental income to qualify for a new mortgage, you’ll have to jump through more hoops than a typical W-2 employee would. This is a complex topic, so we’ll explore it more below.
Using rental income to buy another home
When qualifying for your second home loan, you might have trouble meeting your lender’s debt-to-income (DTI) guidelines.
DTI can be a bigger hurdle when you already have a mortgage loan out. That’s because your total monthly commitments, relative to your income, might be too high to add another mortgage payment.
To help, you can use the rental income you’ll be earning on your first home when submitting a loan application for your second home.
There is a catch to using rental income. Generally, you’ll need to earn rental income for at least two years before a mortgage lender will consider it — just like a lender typically wants to see two years of W2 forms. If you’re not yet renting out your home, you won’t meet this requirement for two more years.
However, you are allowed to use your rental income as a compensating factor, and that could be the difference between getting approved or not.
Regardless of how you end up using the rental income when applying, it should help out a lot. While the VA (and most loan programs) will accept up to 43% DTI, having multiple loans out at a time can make it difficult to keep below that level.
There are a few snags that could happen, but if you plan everything out ahead of time, there’s no reason you shouldn’t be able to rent out a home you bought with a VA loan and then use another VA loan to buy your next house.
Can I rent my house with a VA loan FAQs
Can I rent my house with a VA loan?
Yes. If you have a VA-financed home and you’ve used it as a primary residence for at least a year, you could convert the home into a rental house. You could also buy a second home using another VA mortgage if you agree to use the new home as your primary residence.
When can I rent my house with a VA loan?
Typical VA lenders will ask you to certify that you’ll live in your new home for at least a year. You should fulfill this agreement before turning your home into a rental house. However, you can also ask for an exception, especially when you have a permanent change of station (PCS).
How long do you have to occupy a VA loan home before renting?
You should fulfill your occupancy agreement with your VA lender. For most VA mortgages, lenders ask you to certify that you’ll live in the home for at least a year before turning the home into a rental property.
Can you use a VA loan for a rental?
While you can’t use a VA loan to buy a home that you plan to use as a rental property, you can convert a home you already bought with a VA loan into a rental home. This is an option if you have a new PCS but don’t want to sell your home.
Do I have to refinance before I can rent out my VA home?
No. You don’t have to refinance into a different loan type in order to rent out your home. VA-financed homes can work as rental homes when you’ve fulfilled your agreement to live in the home for at least a year.
How long do you have to live in a VA loan house?
You can sell your home anytime. You can also refinance out of your VA loan any time — as long as you meet your lender’s requirements for the refinance loan. But to turn your VA-financed home into a rental property, you’ll usually need to live in the home for a year first.
How long do you have to live in a VA home before you can sell?
You can sell your VA home anytime. But selling right away could be costly. Closing costs add 2% to 5% to the cost of your home, so you may need to keep the home for a few years to make closing costs worthwhile.
Does the VA check occupancy?
Unless it has a reason to do so, the VA typically does not check to see whether you’re meeting your loan’s occupancy requirement. But it’s still best to fulfill your occupancy agreement since it’s part of your VA mortgage loan’s terms and conditions.
Do I have to refinance before I can rent out my VA home?
No. You don’t have to refinance before turning your VA mortgage-financed home into a rental property. In most cases, you will need to live in the home a year before renting it out, though. One exception: When you buy a multi-unit property and live in one of the units, you can start renting out the other units right away.
Can you use your VA loan for a rental property?
No. The VA home loan program helps veterans and active-duty military members — and many National Guard members and Reservists — buy homes to use as a primary residence. A VA loan won’t finance a new rental property. But you could turn your VA loan-financed home into a rental home after you’ve lived in it for a year.