Can You Rent Your House If You Have A VA Loan?
The VA wants their mortgage program to get veterans and active military into houses, not for people to get vacation homes or investment properties. VA occupancy requirements state that current VA homeowners must occupy their home within 60 days of securing financing and must continue to reside in their current home.
But what happens when you decide to move? If they can afford it, borrowers should be able to keep their current home and purchase a new home. But with VA loan restrictions, this is difficult.
That’s where the IRRRL comes in.
The VA Interest Rate Reduction Refinance Loan (IRRRL) is one of two refinances available through the VA. Thanks to looser guidelines, veterans may be able to use this refinance to keep their home and buy another with a new VA mortgage.Click to check today’s VA rates (Jul 6th, 2022)
Can I rent out my house if I have a VA loan?
Yes, but with some contingencies. The Department of Veterans Affairs intends for the VA home loan program to get service members and Veterans into primary residences rather than purchase income properties. But once you’ve met the owner-occupancy rule, then you may be able to refinance and rent the property when you move into a new home.
How long do you have to occupy a VA loan home before renting?
There is no specific rule from the VA determining how long you must occupy a VA home before refinancing, although you will likely sign paperwork at closing indicating an intention to stay in the home for at least 12 months after closing.
These documents — and the guidelines from your individual lender — will offer information on what to do if you decide to stop occupying the home, or sell it, earlier than that.
Refinancing a rental property with a VA IRRRL
To be able to use a VA loan to purchase a new home while continuing to own their current home, veterans should do two things:
- Refinance with an IRRRL
- Make sure they have enough entitlement left
Refinancing with an IRRRL is pretty simple. To be able to use this refinance program, veterans need to be able to get a lower interest rate than they have with their existing VA loan. This saves the homeowner money on monthly payments, too, so it’s not a bad idea for some homeowners even if they’re planning on staying in their home.
Getting an IRRRL isn’t nearly as complicated as getting a VA loan. And compared to other refinance options, it’s a very smooth process. You won’t need to prove your income, you won’t need another VA appraisal and, most importantly, you don’t need to prove that you are or will be living in the home in the future. You only need to supply your information on when you first occupied the home.
So, by getting an IRRRL, you can continue to keep the home while helping your own cause for your next VA loan. This helps you get around the primary occupancy rule.
Next, you need to make sure you have enough entitlement left to cover the new loan amount. Your certificate of eligibility (COE) will tell you the amount of your entitlement.
So, if you purchased a home below that value – and even made a downpayment – you likely have entitlement left. That’s good since you’ll need to have entitlement left to get a new loan from your VA lender.
If you sell any (or all) homes you have a current loan on, you get that entitlement back.Check today’s VA refinance rates (Jul 6th, 2022)
Using the rental income to buy another home
When trying to qualify for your next home, you might have an issue with debt-to-income (DTI). Because you already have a mortgage loan out, your total monthly commitments relative to your income might be too high to add another mortgage payment.
To help, you can use rental income when applying.
There is a catch to using rental income. Generally, you’ll need to have at least 2 years of rental income to be able to include it, similar to how your lender will want your last few years of income from your job. 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 should be able to rent out a home you bought with a VA loan then use another VA loan to buy your next house.Check today's VA rates (Jul 6th, 2022)