Using your VA loan to house hack is a powerful strategy to live for free, build equity, and start your journey to real estate investing with minimal initial investment. This guide will walk you through exactly how to house hack with your VA loan, including a personal example, steps to follow, and insights on using a VA loan to buy duplexes, triplexes, and four-unit residential properties.
What Is House Hacking with a VA Loan?
House hacking is a strategy where you buy a home, live in part of it, and rent out other parts to cover your mortgage costs. The goal is to have rental income from other units or rooms to cover your mortgage, taxes, insurance, and sometimes even utilities.
The VA loan—a benefit for eligible veterans, active-duty military, and other qualified groups—is a unique tool to house hack because it allows buyers to purchase a home with zero down payment, no mortgage insurance, and competitive interest rates. For those looking to live in one unit and rent out the others, the VA loan provides a golden opportunity, allowing buyers to purchase residential properties with up to four units, as long as they intend to live in one of them.
My Personal Experience with House Hacking
Let me start by sharing my own story of house hacking. Back in 2007, I was a Sergeant in the Marine Corps, recently returned from my third deployment. Tired of living in the barracks, I was ready for a change. Fortunately, with the barracks occupancy rate at 98%, I was approved for a Basic Allowance for Housing (BAH), which meant I could move out and live in town.
I decided to use my VA loan to buy a three-bedroom, two-bathroom house. With zero down payment and the seller covering my closing costs, I was all in with no money out of pocket. A couple of my buddies, also on BAH, moved in and rented the other bedrooms from me, covering the mortgage, insurance, taxes, and some utilities. Effectively, I was living for free—and pocketing my entire BAH every month. It was an eye-opening experience and my first step toward real estate investing.
Why the VA Loan Is Perfect for House Hacking
The VA loan is one of the best financing options available for house hacking due to its unique advantages:
- No Down Payment: Most loan programs require 3-20% down payments, but VA loans allow eligible veterans to buy a home with zero money down.
- No Private Mortgage Insurance (PMI): Most lenders require PMI if you pay less than 20% down, but with a VA loan, you avoid this extra cost.
- Competitive Interest Rates: VA loans typically come with lower interest rates, helping keep your mortgage costs down.
- Ability to Buy Multi-Unit Properties: With a VA loan, you can purchase up to a four-unit residential property as long as you intend to occupy one of the units as your primary residence.
How to House Hack Using a VA Loan: Step-by-Step
Now, let’s go through the steps of using your VA loan to house hack, with examples for a duplex, triplex, and four-unit residential property.
Step 1: Determine Your Eligibility for a VA Loan
First, you need to confirm your eligibility for a VA loan. Most active-duty service members, veterans, and certain military spouses qualify. The easiest way to verify this is by obtaining your Certificate of Eligibility (COE) from the VA, which you can request through the VA’s website or with the help of your lender.
Step 2: Research Local Real Estate Markets
House hacking success often depends on finding a property in a rental-friendly area. Research neighborhoods with high demand for rentals and ensure the property will bring in enough rent to cover or exceed your mortgage payments.
Step 3: Get Pre-Approved by a VA-Approved Lender
VA loans are processed by private lenders, so shop around to find a VA-approved lender with competitive rates and favorable terms. Pre-approval will give you a clear picture of your budget, showing how much you can afford based on your income, BAH (if applicable), and potential rental income.
Step 4: Find a Duplex, Triplex, or Four-Unit Property
One of the best features of the VA loan is the ability to buy a multi-unit property, including duplexes, triplexes, and four-unit buildings. Let’s explore how each of these options could work for house hacking:
- Duplex: You live in one unit and rent out the other. The rental income from the second unit could cover part of or even your entire mortgage.
- Triplex: Live in one unit and rent out the remaining two. With more rental income potential, this arrangement often results in a more substantial cash flow.
- Four-Unit Property: Living in one of four units while renting out the other three maximizes your rental income potential. With three paying tenants, it’s likely your mortgage and expenses are fully covered, and you may even see some profit.
Step 5: Analyze the Numbers and Project Cash Flow
Calculate the expected rental income from the units you plan to rent out. Here’s how you can do it for different multi-family property setups:
- Duplex Example: Let’s say you find a duplex where each unit rents for $1,200/month. You live in one unit, renting out the other for $1,200. If your total mortgage payment is $2,000, the rental income covers 60% of your monthly mortgage.
- Triplex Example: For a triplex where each unit rents for $1,000/month, and you live in one, you would receive $2,000 in rental income each month. If your mortgage is $2,500, your tenants cover most of the costs, with only $500 coming out of your pocket.
- Four-Unit Property Example: In a four-unit building where each unit rents for $1,000/month, you live in one and rent out the other three, generating $3,000 in rental income. With a mortgage of $2,500, you’re effectively covering all your costs and pocketing $500 monthly.
Step 6: Make an Offer and Negotiate Terms
Once you find a suitable property, work with your real estate agent to submit an offer. In competitive markets, it’s essential to act quickly, especially when multi-family properties are involved. Remember, VA loans have certain property requirements, so be ready to negotiate with sellers to address any VA-required repairs or safety improvements.
Step 7: Complete the VA Loan Process
Once your offer is accepted, your lender will guide you through the VA loan process, including an appraisal and underwriting. The VA appraisal will verify that the property meets certain standards and is safe for occupancy.
Tips for Successful VA Loan House Hacking
- Consider Your Primary Residence Requirement: VA loans require you to live in the property as your primary residence. This means you must intend to live in one of the units for at least a year, although many people stay longer to maximize the benefits.
- Utilize Your Basic Allowance for Housing (BAH): If you’re on active duty, use your BAH to cover your mortgage payments. This allowance can significantly reduce your out-of-pocket costs, and when combined with rental income, can help you build equity.
- Evaluate Property Management Options: Living in close proximity to tenants comes with its own challenges, so consider hiring a property manager if you’re planning to deploy or move. The VA loan doesn’t restrict you from hiring a property manager to handle daily maintenance, tenant requests, and repairs.
- Factor in Maintenance and Repairs: With multi-unit properties, maintenance costs can be higher, so budget for regular upkeep to avoid unexpected expenses that could reduce your cash flow.
Key VA Loan Requirements for House Hacking
Here’s a summary of the main VA loan requirements for buying a multi-family property:
- Primary Residence Requirement: The property must serve as your primary residence, so you need to occupy one of the units within 60 days of closing.
- Property Limit: VA loans cover properties with up to four units, allowing for duplexes, triplexes, and four-unit residential buildings.
- Zero Down Payment: The VA loan requires no down payment, although you’re allowed to make one if you choose.
- Credit and Income Requirements: While the VA doesn’t have a minimum credit score, most lenders look for a score of 620 or higher. Your income and rental income will also factor into your qualification.
- Appraisal Requirements: The property must pass a VA appraisal, ensuring it meets safety, soundness, and sanitary standards.
FAQs About House Hacking with a VA Loan
- Can I use rental income from a VA-financed multi-unit property to qualify for a larger loan?
Yes, lenders typically factor in potential rental income from other units to help you qualify for a larger loan amount. - Do I need landlord experience to house hack a multi-unit property?
No landlord experience is required, though it’s beneficial to understand basic property management. Many VA loan providers can advise you on best practices. - How long do I have to live in the property before renting out my own unit?
VA loans require you to occupy the property for at least a year. After that, you can explore options for renting out your unit. - Can I use a VA loan to refinance a multi-unit property I already own?
Yes, VA loan holders can use a VA Interest Rate Reduction Refinance Loan (IRRRL) to refinance an existing property, provided they still meet VA loan requirements. - Are there restrictions on where I can use a VA loan for a multi-unit property?
VA loans are available nationwide for eligible properties. Just ensure the local rental market supports your investment.
House hacking with a VA loan is a smart financial move that allows veterans and active-duty service members to live for free or close to it while building long-term wealth through real estate. By using the VA loan to purchase a duplex, triplex, or four-unit property, you can maximize your Basic Allowance for Housing, reduce housing expenses, and start growing a real estate portfolio. If you have any questions about the process, consider reaching out to a real estate professional experienced in VA loans and multi-family properties.