VA loans were designed to assist military veterans in affording a primary residence. But did you know they can also be for investment properties?
With the right advisors to walk you through each step, you can be well on your way to owning a multi-unit property and generating income.
Let’s go through how to use a VA loan for an investment property, the pros and cons, and the types of properties that are eligible.
Lastly, we’ll share how you can receive a free quote for your next VA loan.
Financing an investment property with a VA loan
As the U.S. Department of Veterans Affairs backs the VA loan, specific rules and requirements exist for using a VA loan for an investment property.
Those eligible for a VA loan include veterans, active duty service members, reservists, and spouses.
A VA loan has many advantages including lower mortgage rates than conventional loans.
When you use a VA loan for an investment property, you can typically expect the following process:
- Find the property you’d like to finance
- Speak with a VA loan provider
- Gather all required documentation for applying for a VA loan and apply
- The underwriting process begins
- Receive approval for a VA loan, and you close on the property
A pre-approval letter can go a long way in helping your offer be accepted, especially in a competitive market.
It shows how much you may be eligible to borrow and that you have a secure source of financing. Sellers can feel assured that there shouldn’t be any unexpected roadblocks in the financing process of the sale.
It’s also important to note that not all lending institutions can offer a VA loan. You have to find a lender in your area that meets the requirements to provide federally funded loans.
After you speak with a lending professional, you’ll quickly realize the process begins with you. The sooner you can gather all the required documentation to apply for the loan, the sooner you can close on your investment property.
The required documentation can include but is not limited to:
- COE: Certificate of Eligibility
- Proof of income and identity
- Bank statements and W-2s
After you’ve provided all of the needed documentation, the underwriting process begins. This process can take some time, depending on your lender.
Get an Express Loan Approval with The Federal Savings Bank
The Federal Savings Bank offers an exclusive Express Loan Approval program, which was created to save you time throughout this process. Not all lenders will offer a program like this so it’s important to do your research when it comes to choosing a lender.
If you’re interested in using a VA loan for an investment property, let’s look at the pros and cons to see if this loan would benefit your goals.
Pros and Cons of financing an investment property with a VA loan
When deciding if you should use a VA loan for an investment property, it’s beneficial to look at the good and maybe not as good (depending on what you’re looking for).
Pros
- 0% downpayment — that’s right, zero
- Low-interest rates
- No PMI (private mortgage insurance)
- Generate income
If you’re eligible for a VA loan, you can buy a home or investment property with as little as 0% down. High downpayment requirements can often deter potential home buyers.
When you consider a home that costs $250,000 and requires a 10% downpayment, that’s $25,000 up front.
Lower interest rates also mean more money in your wallet. Interest rates greatly impact your monthly mortgage payments.
VA loans were created to thank our veterans for their time spent serving, so this is one of the ways that the government can give back.
Another way VA loans benefit our veterans is by not requiring private mortgage insurance. PMI can also add up quickly in monthly mortgage payments.
Lastly, and most importantly, you can generate income from an investment property. How you use that income is entirely up to you, including paying off any debts, major expenses, vacations, or other investment properties.
Cons
- VA Funding Fee
- VA property requirement limitations
- VA loans cannot be used solely for investing purposes or commercial properties
While PMI isn’t required, there is the VA Funding Fee you should be aware of, which hovers around 2-3% of your VA loan. This fee allows the VA to keep the program going for other veterans. It doesn’t compare to the typical downpayment costs and other conventional loan requirements but it’s something to keep in mind.
Additionally, the VA property requirements can limit what type of property you can finance, which can put a limitation on your investing goals.
One of the ‘quirks’ of these loans is that the investment property must be your primary residence, so you can’t use them for commercial properties or solely investing purposes.
An example of this situation is that you use a VA loan to invest in a duplex where you can live and rent out the other side.
It would be best to speak with a qualified VA lending advisor to fully understand how this may impact your investment property.
What types of properties are eligible?
VA loans have a few specific limitations on what type of property you can purchase. A good starting point is understanding what types of homes are eligible.
You can use a VA loan for single-family, two-unit, and multi-family investment properties.
Depending on your comfort and what the property offers, you can turn a single-family property into an investment; you could rent out the basement or a bedroom, or turn the garage into a single-unit apartment.
Two-unit properties include duplexes that offer living spaces for two families. Like all properties for VA loans, the only stipulation is that the property must also be your main residence.
Lastly, multi-family properties can support 2-4 families, equating to an enormous financial return. Of course, the more property you purchase, the more responsibility you will have to provide livable conditions.
Depending on the market and what you may be eligible for will also define what type of property you can afford.
The Federal Savings Bank: unparalleled experience, industry expertise, and exceptional customer service
As we said in the beginning — with the right team and guidance, you can successfully use a VA loan for an investment property.
The Federal Savings Bank works with a dedicated group of senior-ranking military veterans who make up our team of Military Advisors.
Their mission is to offer counsel and support to veterans as they continue on their property and homeowning journey.
We take serving our community and veterans seriously—no gimmicks or tricks. We pride ourselves in honesty, transparency, and integrity.
Reach out to us today to receive a free VA loan quote.
Home is here.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to you individual situation.
