There are many reasons why a borrower who owns a home purchased with a VA loan would consider renting out his or her property.
Active duty military members who are being reassigned to a new base, for example, might want to keep the home but can’t occupy it for the length of the new tour. Other borrowers may fall on tough economic times and want to explore renting the home as opposed to selling it.
But can a homeowner paying a VA mortgage rent the home out? Is this allowed under the terms of the VA home loan?
The short answer is no — but there are some options.
The reason a VA borrower isn’t allowed to rent out the property is because of the primary occupancy rule. VA loan rules require the borrower to certify they will use the property as their primary residence. No investment properties or summer homes may be purchased with a VA loan.
But there is an alternative to selling the property. A VA borrower is permitted to apply for an Interest Rate Reduction Refinancing Loan or IRRRL, which does not have the same occupancy requirements than a new purchase VA home loan.
According to the VA’s official site, “The occupancy requirement for an IRRRL is different from other VA loans. When you originally got your VA loan, you certified that you occupied or intended to occupy the home. For an IRRRL, you need only certify that you previously occupied it.”
The rules for a VA IRRRL allow what the VA calls a “no money out of pocket” transaction, “by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs.”
VA rules do require the interest rate on the new loan to be lower than the original rate, but there is an exception for those who wish to refinance an adjustable rate mortgage to a fixed rate mortgage.