VA Loan Rental Income and Primary Conversions

VA loan rental income in primary conversions. In this little mini two-part series, we’re talking about rental income on primary conversions and non-primary conversions for VA loans.

What is a primary conversion?

A primary conversion is very simple. Think of it as: Johnny’s PCSing and making this move from Texas to Virginia, and he wants to rent out that home that they’ve been living in for years down in Texas. Well, they’re going to make a primary conversion, take that primary residence, and convert it into a rental property.

The VA loan guidelines are very generous on this, and what we can ultimately utilize for them is just a signed lease. A lot of other loan types sometimes require deposits and you document a lot of different things.

Well, for VA loans, if you are going to convert a primary residence into a rental property and are moving to buy a new one, the main thing we need is a signed lease, and we can utilize 75 percent of that rental income.

So, in that scenario, let’s say Johnny’s PCSing from Texas to Virginia, and his mortgage payment down there is, say, three thousand dollars a month, and he can rent it out now for four thousand dollars a month.

Well, if he rents it out for four thousand, as long as we got that lease, we can utilize 75 percent of it, which would be three thousand dollars. That offsets his mortgage payment on that home in Texas, which then helps him with his qualifying in Virginia.

In a lot of cases, if folks can’t do that primary conversion, or aren’t doing that primary conversion, then that monthly payment from that old home will raise their debt-to-income ratio, bogging down their ability to get that loan at their next location.

So, it’s really important being able to use this, and VA loans are treated a little bit differently, but a primary conversion, that’s how it works. We’re able to utilize the lease and use the 75 percent of that rental income to help offset that housing expense, making it so they can get approved on that loan when they’re making their next PCS.

In the next series, we’ll talk about when it’s not a primary conversion, but hopefully, this helps you when you’re working with clients or you yourself happen to be planning on renting out that home you live in right now to go buy a new home with a VA loan.