Using Rental Income to Qualify for a VA Loan
VA counts rental income in three ways. A departing residence's rent can only offset that property's mortgage and "may not be included in effective income." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] Existing rental properties need 3 months PITI reserves and a 2-year tax history. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] Multi-unit properties count 75 percent of the lease unless more is documented. [38 CFR 36.4340(f)(12)(i)]
Talk to a VA Loan Officer About Qualifying With Rental Income
Departing residence: offset only
- Offset, not income. "Use the prospective rental income only to offset the mortgage payment on the rental property, and only if there is not an indication that the property will be difficult to rent. This rental income may not be included in effective income." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- No reserves needed. "Reserves are not needed to offset the mortgage payment on the property the [V]eteran occupies prior to the new loan." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- Lease or strong market. If there is no lease, the lender "may still consider the prospective rental income for offset purposes" when "the local rental market is very strong." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
Existing rental property
- 3 months PITI reserves. The lender must verify "cash reserves totaling at least 3 months mortgage payments (PITI)." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- 2-year tax return history. "Each property(ies) must have a 2-year rental history itemized on the borrower's tax return." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- Depreciation adds back. "Property depreciation claimed as a deduction on the tax returns may be included in effective income." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
Multi-unit property (the VA loan property)
- 6 months PITI reserves. The [V]eteran must have "sufficient cash reserves ... to carry the mortgage loan payments ... without assistance from the rental income for a period of at least 6 months." [38 CFR 36.4340(f)(12)(i)]
- 75 percent of lease counted. "The amount of rental income to be used in the loan analysis will be based on 75 percent of the amount indicated on the lease or rental agreement, unless a greater percentage can be documented." [38 CFR 36.4340(f)(12)(i), 75 pct]
- Landlord experience required. The lender verifies "the borrower's prior experience managing rental units and/or use of a property management company to oversee the property." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
What cannot be used as reserves
- Equity. "Equity in the property cannot be used as reserves." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- Refinance proceeds. "Cash proceeds from a VA refinance cannot be counted as the required PITI on a rental property." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- Gift funds. "Gift funds cannot be used to meet reserve requirements." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
Top questions before you dig in
Can you use rental income to qualify for a VA loan?
Yes. VA recognizes rental income from three categories of property. The departing residence can provide an offset against its own mortgage. [38 CFR 36.4340(f)(12)(ii)] Existing rental properties can contribute to effective income if you have 3 months PITI reserves and a 2-year tax return history. [38 CFR 36.4340(f)(12)(iii)] A multi-unit property you are purchasing with the VA loan can count 75 percent of the lease, or more if documented, with 6 months reserves and landlord experience. [38 CFR 36.4340(f)(12)(i)]
Can you count the rent from the home you are leaving?
Only as an offset. "Proposed rental of a [V]eteran's existing property may be used to offset the mortgage payment on that property, provided there is no indication that the property will be difficult to rent." [38 CFR 36.4340(f)(12)(ii)] The offset covers the departing property's mortgage, but the rent cannot be added to your effective income. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
Do you need two years of landlord experience?
For existing rental properties (properties you already own), "each property(ies) must have a 2-year rental history itemized on the borrower's tax return." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] For the departing residence, the lender uses the rental agreement or a strong local rental market to support the offset. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
The Bottom Line Up Front
VA underwriters count rental income in one of three ways, each with different documentation and reserve requirements, and the departing-residence offset is the most common path for [V]eterans who already own a home.
For a departing residence, proposed rent can only offset that property's mortgage, not add to your income, and no reserves are needed. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] Existing rental properties require 3 months PITI reserves, a 2-year rental history on your tax returns, and depreciation can be added back. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] For a multi-unit property securing the VA loan, you need 6 months PITI, documented landlord experience (or a property management company), and 75 percent of the lease is counted unless a greater percentage can be documented. [38 CFR 36.4340(f)(12)(i)]
Departing Residence: The Rental Offset Rule
When you buy a new primary residence with a VA loan and plan to rent out the home you are leaving, the proposed rent can offset the mortgage on that departing property. [38 CFR 36.4340(f)(12)(ii)] This means the departing property's monthly PITI does not count against you in full, but the rental income cannot be added to your overall effective income. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
The pamphlet gives this example: "The [V]eteran's current home has a VA mortgage with a monthly PITI payment of $1,000. Bonus entitlement is being used to purchase a new primary residence and the [V]eteran will rent the previous home for $1,200 monthly upon closing of the new home. The payment of $1,200 can be used to offset the existing mortgage payment, if all the above conditions are met. The additional rent received in excess of the mortgage payment cannot be used as effective income." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
In that example, the $1,200 monthly rent covers the $1,000 PITI, so the departing property's payment is fully offset. The remaining $200 per month is not counted as income.
Two conditions apply:
- There must be no indication the property will be difficult to rent. The lender must "obtain a working knowledge of the local rental market." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- A lease is preferred but not required. If there is no lease but the local market is "very strong," the lender may still allow the offset. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
No reserves are required for a rental offset. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] For the occupancy rules when you rent out a home bought with a VA loan, see Renting Out a Home You Bought With a VA Loan.
Existing Rental Property Income
If you already own rental property separate from the home you are buying, that rental income can be included in your effective income. The CFR calls this "other rental property" and requires "the documentation required of a self-employed applicant ... together with evidence of cash reserves equaling 3 months PITI on the rental property." [38 CFR 36.4340(f)(12)(iii)]
The pamphlet breaks this into two steps:
- Verification: "documentation of cash reserves totaling at least 3 months mortgage payments (PITI)" and "individual income tax returns, signed and dated or lender obtained tax transcripts, plus all applicable schedules for the previous 2 years, which show rental income generated by the property." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- Analysis: "Each property(ies) must have a 2-year rental history itemized on the borrower's tax return." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] "Property depreciation claimed as a deduction on the tax returns may be included in effective income." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
If the net rental income is negative even after adding back depreciation, "the negative income should be deducted from the overall income as it reduces the borrower's income." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
If you own multiple rental properties, "the borrower must have 3 months PITI documented for each property to consider the rental income." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
The CFR adds: "In the case of a [V]eteran who has no experience as a landlord, it is unlikely that the income from a rental property may be used to qualify for the new loan." [38 CFR 36.4340(f)(12)(iii), no experience] For the full list of income types VA accepts, see VA Loan Income Requirements.
Multi-Unit Property Securing the VA Loan
When the property you are purchasing with the VA loan has more than one unit (a duplex, triplex, or fourplex), the rental income from the other units can be counted in effective income under stricter requirements. [38 CFR 36.4340(f)(12)(i)]
"The [V]eteran/borrower must occupy one unit as his/her residence." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
The lender verifies "cash reserves totaling at least 6 months mortgage payments (PITI), and documentation of the borrower's prior experience managing rental units and/or use of a property management company to oversee the property." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] Either prior landlord experience or a property management company satisfies the experience requirement.
Prospective rental income is included "only if: the borrower has a reasonable likelihood of success as a landlord, and cash reserves totaling at least 6 months mortgage payments (PITI)." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
"The amount of rental income to be used in the loan analysis will be based on 75 percent of the amount indicated on the lease or rental agreement, unless a greater percentage can be documented." [38 CFR 36.4340(f)(12)(i), 75 pct] For proposed construction, the figure is "75 percent of the amount indicated on the appraiser's opinion of the property's fair monthly rental." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
Example (using the 75 percent rule at an example lease of $2,000 per month): $2,000 multiplied by 0.75 equals $1,500 counted in effective income. [38 CFR 36.4340(f)(12)(i), 75 pct] · calculated at 75%, $2,000 lease
"If each unit is separate and not under one mortgage, 6 months PITI must be verified for each separate unit." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
For details on VA loans for duplexes, triplexes, and fourplexes, see VA Loans for Multi-Family Homes.
What VA Does and Does Not Accept as Reserves
"Reserves are required for borrowers using rental income to qualify." [VA Pamphlet 26-7, Ch. 4, Topic 4] "A rental offset does not require additional assets to cover PITI." [VA Pamphlet 26-7, Ch. 4, Topic 4]
| Rental income type | Reserves required | History required | How much counts |
|---|---|---|---|
| Departing residence offset [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] | None | Lease or market analysis | Offset only (not effective income) |
| Existing rental property [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] | 3 months PITI per property | 2-year tax return history | Net rental income (depreciation added back) |
| Multi-unit VA loan property [38 CFR 36.4340(f)(12)(i)] | 6 months PITI | Landlord experience or property management | 75% of lease or appraiser estimate (more if documented) |
| Boarder income [VA Pamphlet 26-7, Ch. 4, Topic 2(o)] | None | 2-year tax return history | 100% |
The following cannot be used to meet reserve requirements:
- "Equity in the property cannot be used as reserves to meet PITI requirements. This must be the borrower's own funds, not a gift." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- "Cash proceeds from a VA refinance cannot be counted as the required PITI on a rental property. The reserve funds must be in the borrower's account before the new VA loan closes." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- "Gift funds cannot be used to meet reserve requirements." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
Boarder Income From a Single-Family Residence
VA recognizes boarder income from a single-family residence under section (o) of Chapter 4. Verification requires "individual income tax returns, signed and dated, plus all applicable schedules for the previous 2 years, which show boarder income generated by the property." [VA Pamphlet 26-7, Ch. 4, Topic 2(o)]
Two restrictions apply: "the rental cannot impair the residential character of the property and cannot exceed 25 percent of the total floor area." [VA Pamphlet 26-7, Ch. 4, Topic 2(o)]
Boarder income is included in effective income "only if the borrower has a reasonable likelihood of continued success due to the strength of the local market." [VA Pamphlet 26-7, Ch. 4, Topic 2(o)] Unlike other rental income categories, "PITI reserves are not necessary to consider the income, and all the income may be used in the analysis." [VA Pamphlet 26-7, Ch. 4, Topic 2(o)]
For short-term rental platforms and house hacking with a VA loan, see Using a VA Loan to House Hack With Airbnb.
What If You Have Less Than Two Years of Rental History?
The answer depends on the property type:
- Departing residence: The lender obtains the rental agreement, "if any." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] Without a lease, the lender "may still consider the prospective rental income for offset purposes" when "the local rental market is very strong." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] "Reserves are not needed to offset the mortgage payment." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- Existing rental property: "Each property(ies) must have a 2-year rental history itemized on the borrower's tax return." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] Without 2 years, the rental income from that property cannot be counted. "If rental income will not, or cannot be used, then the full mortgage payment should be considered and reserves do not need to be considered." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
- Multi-unit VA loan property: The lender evaluates "the borrower's prior experience managing rental units and/or use of a property management company." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] 75 percent of the lease (or more if documented) can still be counted if the lender determines a "reasonable likelihood of success as a landlord." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
If the rental income cannot be used, the full mortgage payment is counted and reserves are not required. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] For ways to strengthen your application, see VA Loan Compensating Factors and the VA Residual Income Chart.
Frequently Asked Questions
Can the excess rent from a departing residence count as income?
No. "The additional rent received in excess of the mortgage payment cannot be used as effective income." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] The proposed rent can only offset the departing property's mortgage, not add to your overall income.
Can you count rental income if you have never been a landlord?
For existing rental properties, the CFR states: "In the case of a [V]eteran who has no experience as a landlord, it is unlikely that the income from a rental property may be used to qualify for the new loan." [38 CFR 36.4340(f)(12)(iii), no experience] For a multi-unit property securing the VA loan, the lender can accept "use of a property management company to oversee the property" instead of prior landlord experience. [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
What happens if your rental income is negative after the depreciation add-back?
"If after adding depreciation to the negative rental income, the borrower still has rental loss, the negative income should be deducted from the overall income as it reduces the borrower's income." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
Does VA require a property management company for a multi-unit property?
Not necessarily. The lender verifies "the borrower's prior experience managing rental units and/or use of a property management company to oversee the property." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] Either prior landlord experience or a property management company satisfies the requirement.
Can you use equity in the rental property as reserves?
No. "Equity in the property cannot be used as reserves to meet PITI requirements. This must be the borrower's own funds, not a gift." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
What if you choose not to use rental income?
"If rental income will not, or cannot be used, then the full mortgage payment should be considered and reserves do not need to be considered." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)] The property's full PITI counts against your debt-to-income ratio, but you avoid the reserve and documentation requirements.
What if there is no mortgage on the rental property?
"If there is not a lien on the property, 3 months reserves to cover expenses such as taxes, hazard insurance, flood insurance, homeowner's association fees, and any other recurring fees should be documented for the property(ies)." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
Can you use VA refinance proceeds as reserves?
No. "Cash proceeds from a VA refinance cannot be counted as the required PITI on a rental property. The reserve funds must be in the borrower's account before the new VA loan closes." [VA Pamphlet 26-7, Ch. 4, Topic 2(n)]
How We Researched This Page
We built this page from VA Pamphlet 26-7, Chapter 4, which is the VA Lender's Handbook section on income analysis. The rental income rules come from Topic 2, subsection (n) (rental income) and subsection (o) (boarder income). The binding regulation is 38 CFR 36.4340(f)(12), which covers multi-unit subject property, rental of an existing home, and other rental property. Reserve requirements are cross-referenced from Topic 5 of the same chapter. Every claim on this page is mapped to a verbatim line from these sources.