When the Servicemen’s Readjustment Act of 1944 was initially signed into law it served both as an act of appreciation to the brave soldiers who fought in World War II but also as a way to help returning veterans more quickly transition from military to civilian life. Educational grants and funds to start a business were just a few of the popular benefits as well as the VA home loan program. This suite of benefits helped soldiers become civilians once again. But the VA loan program which is still going strong to this day, didn’t make allowances to use the VA loan to buy rental properties. Why is that?
It might be correct to think that buying investment real estate would help a returning soldier make money in the long run by “flipping” the property at some point down the road or collecting monthly rental income. But this was not the spirit or the letter of the law. The VA wanted to have veterans find and finance a home as a primary residence while they looked for work, got married and sent their kids to school. Not to be used as an investment tool.
That said, it’s perfectly legitimate to buy and finance a home with a VA loan and ultimately turn it into a rental and leave the VA loan on the existing property. When a veteran applies for a VA loan and the VA lender evaluates the request, the VA lender must approve the loan under the existing intentions of the veteran. If the veteran’s intent is to live in the property the VA lender assumes that intention and proceeds to approve the VA home loan. There is no specific time frame the home must be occupied but a reasonable expectation is at least one year or forced to move due to a job transfer or a PCS. In such an instance, the occupancy requirement can be waived and the property at that point turned into a rental.