Va Mortgage Loan Rules About Buying Investment Property
The key to understanding the VA position on investment properties? Knowing that the VA requires owners to occupy the property.
Are you looking for a townhome or condo unit you wish to rent out to others as a landlord? If you dont plan on living in the home yourself you wont get your home loan approved.
You or your qualifying family members or co-borrowers must occupy the property as the primary residence as a condition of loan approval AND you will be required to sign a legally binding document acknowledging this and agreeing to the terms as a condition of loan approval.
Does this mean you cant buy an investment property?
Can You Use A Va Loan For An Investment Property
While the VA loan program offers more relaxed borrowing qualifications than conventional loans, VA loan occupancy requirements specify that you must use the home or property youre purchasing as your primary residence. As such, you wont be able to use your VA loan to purchase a rental property, vacation home or other investment at least not directly.
While you cant purchase a house with the intention of renting the property, you do have some options for using your primary residence to generate rental income.
The Investment Property Loan Process
If you plan to finance your investment property with a mainstream home loan , the process will look very similar to any other home purchase. You will:
As when buying a home for yourself, its a good idea to get preapproved for a mortgage before you begin house hunting. That way, youll know how much home you can afford. And, more importantly, the seller and sellers real estate agent will know youre making a serious offer.
Before you settle on a lender, make sure to comparison shop for the very best mortgage rate you can find. Investment property mortgage rates are often 0.50 to 0.75% higher than those for standard mortgages. And the lower your rate, the higher your profit margin on the property will be.
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How To Buy An Investment Property With A Va Mortgage
Purchasing a multi-unit property gives you the option of renting out the unused living units in your new home. This is permitted under VA mortgage loan program rules.
What is not permitted? Buying property you intend to turn into an Airbnb, condohotel, frat or sorority house, bed-and-breakfast, etc. Short-term rentals are generally not allowed for government-backed mortgages. You may find that rentals of 30 days or less are specifically prohibited depending on the mortgage loan you seek.
Some borrowers choose to purchase property with a VA mortgage and refinance it with a VA Streamline Refinance loan which normally is required to result in some form of a tangible benefit for the borrower.
Using an FHA Streamline Refinance, you do not have to certify that you will use the home as your primary residence, but rather that you have used the property as your home in the time leading up to the loan application.
This is a good strategy to consider if you want to use the house you bought with a VA mortgage as a rental property but without you having to live there.
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Not More Than Four Single
After you get the property you want, you should not have more than four family units living there. If there are more than four units, you will not qualify for any financing.
You can therefore acquire a duplex, triplex, or quadruple, but you cannot buy a big apartment complex.
If you are looking at using the VA loan for real estate investing, you need to make sure you comply with all the requirements. Lenders will help you with the type of homes you can build to ensure you qualify for lending.
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Refinance With A Va Streamline Or Irrrl
If youre still an active-duty service member and are given a new permanent assignment that is a non-commutable distance from your primary residence, you may want to purchase a primary residence in your new location.
But what if youd like to rent out your existing home instead of selling it to free up your VA entitlements? You can take out a VA Streamline Refinance also called a VA Interest Rate Reduction Refinance Loan .
Converting your VA mortgage loan to a VA IRRRL will exempt you from the VA occupancy rules requiring you to use your property as your primary residence. Youll be able to purchase a new primary residence with a fresh VA loan while you continue to finance your current home with a VA Streamline Refinance.
To apply and qualify for a VA IRRRL, youll need to:
- Have made 6 consecutive months of mortgage payments on your current property
- Demonstrate that refinancing will result in an immediate, tangible economic benefit, such as lowering your mortgage rate or switching your home loan from an adjustable-rate mortgage to a fixed-rate mortgage.
Va Loans Are Assumable Mortgages
VA loans are assumable, meaning that someone can buy a home by taking over the sellers VA mortgage loan. This often allows the buyer to benefit from financing with a lower interest rate if market rates are higher.
In the case of VA loans, a buyer doesnt have to be a military or service member to qualify for a VA loan assumption. However, depending on the loan, the lender may need to get it approved by the Regional VA Loan Center. So, it may take more time to process.
One instance where the seller doesnt need lender approval is when a buyer comes across a freely assumable mortgage that applies to any VA loan closed before or on March 1, 1988. Even without approval, the seller may still have to make payments if the buyer fails to do so. These loans also come with a cost drawback since loans from the late 80s usually have higher interest rates.
Keep in mind: You cant restore your entitlement unless the buyer is an eligible veteran. They must substitute their eligibility for yours.
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What Are The Rules For Using Va Loans For An Investment Property
Hereâs the first rule to remember when youâre planning to use VA loans for investment properties: Youâll have to live in the home youâre buying for at least one year before you can buy another home.
Following this rule aligns your new home loan with the VAâs primary mission of helping veterans buy safe and affordable housing at competitive interest rates.
To buy a home with a VA loan, youâll also need to:
- Qualify for the VA home loan program: VA loans are available to veterans, active-duty servicemembers, and qualifying surviving spouses from all branches of the military, including Reservists and the National Guard
- Qualify with your lender: The VA insures VA loans but private lenders lend the money. Youâll need to match or exceed your lenderâs borrowing credentials to get approved
- Buy a qualifying home: Not all homes meet the VAâs minimum property requirements . The VA wonât insure your loan if the home youâre buying falls short
- Have enough entitlement: Your VA loan benefits are renewable but only by paying off or selling a home. If you donât have enough remaining entitlement to insure your next home loan, you may need to make a down payment or choose a less expensive home
- Pay closing costs: Every new home requires closing costs to cover legal fees, lenderâs fees, the VA funding fee, and the cost of third-party services such as the VA home appraisal
Mike Bendebba, branch manager with Fairway
What Type Of Loan Is Best For An Investment Property
There are many types of investment property loans. Before contacting a mortgage lender, a real estate investor needs to understand all of the options available.
The six most popular types of investment property loans to help you, the investor in real estate, decide which option works best for your investment.
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Benefits Of Va Home Loans
VA loans allow qualified borrowers to put no money down toward the purchase of a home. That flexibility could come in quite handy if you have the income to support ongoing mortgage payments but don’t have enough money in savings to come up with a down payment. Additionally, if you have generous friends or relatives, you can use a down payment gift to cover your down payment.
Also, VA loans don’t charge private mortgage insurance, or PMI, which is a penalty of sorts that buyers face when they can’t make a 20% down payment on a home. PMI generally gets tacked on as an added premium to your monthly mortgage, making it more expensive.
VA loans are also easier to qualify for than traditional mortgage loans, since they’re backed by a government agency. As such, lenders take on less risk and are therefore more lenient with their borrowing requirements.
Finally, VA loans tend to offer competitive interest rates. The exact rate you qualify for, however, will depend on factors like your loan amount and your .
Can I Buy A Multi
Yes but with some stipulations.
The U.S. Department of Veterans Affairs intends the VA home loan program to give qualifying homebuyers the chance to afford a home to live in. With your loan, you can purchase a property that has up to four units. To meet the VA occupancy requirements, youre going to have to make one of the units your permanent residence. This is fairly standard with other mortgage types, such as FHA loans.
You dont have to live in the building the entire time you own it, though. Once you pay off your VA loan, youll now own a fourplex that can generate rental income.
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Can I Use My Va Loan To Buy An Investment Property
Yes, you can use a VA loan to buy an investment property. You just have to make sure the property meets all requirements set by the Department of Veterans Affairs related to home loans.
For example, if you want to buy an investment property with a VA loan, it must be:
- A multi-unit property with 2 4 units
- A single-family home, where a bedroom or on-site apartment is rented out
- A primary residence the home buyer lives in, even if just one unit
The last requirement may not be ideal for many investors. You may want to buy a separate property to rent out to tenants, but to use a VA loan, youll also need to meet the occupancy requirement by living on the property.
Is It Hard To Get A Loan For An Investment Property
Qualifying for an investment property loan is more challenging because lenders view investment properties as a greater risk. Lenders will want to make sure that you earn enough to afford monthly mortgage payments in the worst-case scenario, such as your tenant stops making their payments.
Compared to loans for your personal residence where you may qualify for a 0% or 3% down program, lenders want to see a larger down payment on investment properties, often between 20% to 35%.
To get the best rates and terms, youll want to get a traditional mortgage, which is why most of our winners here have come from that sector. However, you can max out at four conventional loans for investment properties. If you want to keep going, youll need to convert to private and hard money lenders
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Primary Residence With Extra Space
Although the property youre purchasing needs to be your primary residence to be eligible for a VA loan, theres a way around this stipulation.
Lets say, for example, that the borrower purchases a property with a detached apartment or they have an extra room in their single-family home. As long as the property is the borrowers primary residence, they can rent out the detached apartment or extra room and still be VA loan-eligible.
Refinancing From A Va Loan To A Conventional Mortgage
In some cases, you may want to refinance a VA loan through a private lender without VA streamline refinancing. While this may not give you the favorable rates associated with VA loans and refinancing, it could still benefit you.
For example, switching from a VA loan to a conventional mortgage will free you from some of the restrictions of a VA loan and make it easier to use your property in different ways.
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Va Minimum Property Requirements
Whether its your first or second home, your new property must meet the VAs Minimum Property Requirements.
The VA will send an appraiser to see whether the home youre buying measures up. Your new home must have:
- Access to water and sewer
- Heating and electricity
- No construction defects or material decay
If your home fails to meet the VAs standard, the seller must bring the home into compliance. You may need to choose a different home if the current owner cant or wont make the repairs.
The owner could also provide the money for repairs by accepting a lower price for the home. Then you could complete repairs after closing on the loan.
Is Becoming A Landlord Right For You
Ultimately, becoming a landlord means taking on a lot of responsibility. You may be able to outsource the job to a property management company, but youll pay for the privilege. If you find yourself constantly busy or dont want to deal with the inconvenience of living in a building with shared walls, think long and hard before you buy a multi-family home. For many qualified veterans, its best to use VA loans in Colorado Springs for private home purchases.
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What Are The Va Guidelines For An Investment Property
According to the Department of Veterans Affairs, the basic requirements are that you need to be a Veteran and have enough income to qualify for the mortgage loan. A review of your credit history will also help determine that you meet the VA credit history guidelines. Some lenders have guidelines that are stricter than the actual VA guidelines defined by the government agency, so its important to find a lender who will accept a credit history that had some challenges in the past.
If you own a multi-unit property, the key to qualifying for an investment property VA loan is to find a lender who will allow you to use the maximum amount of income from the rental units. Some lenders will only allow you to use a tiny fraction of the rental income. But HomePromise will qualify you based on the maximum amount of income from the rented units based on the VA guidelines. The total number of rental units permitted is 3. This means you can buy a maximum of a 4-unit home. This can make a huge difference in being able to qualify for a multi-family VA loan. Other lenders will qualify you using a tiny amount of your rental income. Not us. We will let you use the most income possible under the VA guidelines from your rental units!
Why Choose HomePromise?
VA Loan Requirements
How Can I Refinance My Va Loan To Rent My Home
Like most mortgages, you can refinance a VA home loan for various reasons. Perhaps you want to get cash to buy a second home if youre reassigned, take advantage of lower interest rates or rent out your home to someone else.
To qualify for VA loan refinancing, youll need to prove you have an existing VA home loan and you either currently occupy or have occupied the home you want to refinance.
Refinancing allows you to free up your VA entitlements without selling.
This can also help you avoid the occupancy rules of a VA loan and make renting easier. The most common refinancing option is the Interest Rate Reduction Refinance Loan , also known as VA streamline refinancing.
Not only can this lower your mortgage rate and free up your entitlements, but it can also allow you to switch from an Adjustable-Rate Mortgage to a fixed-rate loan.
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How Remaining Entitlement Limits Your Second Home Budget
While first-time VA loan borrowers dont have VA loan limits to worry about, these loan limits could affect your second home purchase.
Loan limits vary by location. Areas with more expensive real estate have higher loan limits. For most U.S. counties, the limit is currently $540,250. Well use this common loan limit in this example.
Heres the equation: The VA will insure a fourth of your local loan limit minus any currently used entitlement. A fourth of the national conforming loan limit, $540,250, is $135,062.50.
Lets say you owe $200,000 on your current home loan which means youre using $50,000 of your VA entitlement. Youd subtract this $50,000 from $135,062.50 and get $85,062.50.
That $85,062.50 is how much mortgage insurance the VA would provide your lender. Since the insurance covers only 25% of your loan, you could get a loan up to $340,250 with no down payment.
Can My Dad Use His Va Loan To Buy Me A House
The joint VA loan program allows Veterans and/or active-duty military members to use a joint borrower who is not a spouse or other Veteran. Most lenders wont allow these kinds of loans and will block Veterans from buying a home with a sister, brother, mother, father, son, daughter, or someone who is unrelated. see details
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