The VA loan and rental property
Veterans and qualified service members have benefits that most do not have. In the world of mortgage lending, the VA home loan program is hard to beat. The loan requires no money down, there are reduced closing costs and there is even government-backed guarantee to the VA lender. The caveat is that, unlike conventional mortgages, the VA loan can only be used to finance a primary residence. So how can a property financed with a VA mortgage be a rental property?
Over the recent years, the no-money down concept has taken some heat. Legislators and other pundits decried the zero down loan as helping to contribute to the mortgage crisis of which we’re now recovering from. Yet this didn’t happen with the VA program as VA home loans have always and still claim the lowest default rate of any program. The loan is designed for someone who intends to live in the financed home. When borrowers find themselves in a financial quandary, it’s the rental property that will be given up before a primary residence will.
However, there are times when a home has a VA loan but isn’t occupied by the primary VA borrower. This happens when homeowners with a VA loan decide to move out of their home, keep the VA mortgage on the property and rent out the home. Does this violate the agreement to finance a home with a VA loan? Aren’t VA loans only for an owner-occupied property?
VA loans are approved using the borrower’s original intent at the time of the loan application. If the borrower indicated the property will be used for a rental, the VA loan would have been declined. However, changes occur during the course of everyday life and at some point the homeowner decides to move, either to a bigger home or to downsize. There’s nothing wrong with life changes. And the VA financed home can indeed end up being a rental property.