Va Loans For Investment Property Faqs
Are VA loans available for an investment property?
No, there is no VA loan product designed specifically to buy an investment property. However, the VA does not regulate the way you use the homes you already own. So you could buy a new primary residence with a VA loan and convert your old primary residence into an investment property. Or, you could buy a multifamily property with up to four units and live in one of the units while renting out the others.
Can I use my VA home loan for a rental property?
You couldnt buy a rental property with a VA loan unless you also live on the property in one unit of a duplex, triplex, or fourplex, for example. But, you can convert a home you already own into rental property while using a VA loan to buy your next primary residence.
How long do you have to occupy a VA loan home before renting?
Youll need to live in your VA loan-financed home at least one year before converting it into a rental property.
Ability To Waive Funding Fee
Certain people are able to waive the funding fee. This is a HUGE benefit. If you fall in this category, the VA loan is a no-brainer for you. It will be an excellent value compared to other options.
You do not have to pay the fee if you are a:
- Veteran receiving VA compensation for a service-connected disability, OR
- Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, OR
- Surviving spouse of a Veteran who died in service or from a service-connected disability
If the lender is able to verify from the VA, usually through the certificate of eligibility , that you are exempt, you will not have to pay this fee at closing. If there is any doubt or your disability claim is still pending, you will need to pay. You can file for a refund when your claim is approved and you have all the appropriate documentation.
Converting Va Loan To A Rental
The length of time you have to occupy the home before it can be a rental property is not set in stone. If you intend to live in the property when you buy it, and then get orders to move shortly after closing on the property, you are more than likely safe.
The main point is, you intended to live in the property, and did not have orders to move to another location when you made the purchase. This is my interpretation of the rules. Make sure to explain your situation to your lender when you are purchasing.
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What If I Need A More Expensive Home
In the example above, we learned the VA would cap your no-down payment loan size at $340,250, based on current VA loan limits, if you were already using $50,000 of your entitlement.
But what if the home youre buying costs $500,000? Youd need to come up with a down payment.
The good news: You wont need to come up with the full difference between your maximum loan size and your home purchase price. With most lenders, your down payment would need to cover a fourth of the difference.
In our example, theres a $159,750 difference between the VAs maximum loan size and the homes price . A fourth of that difference $39,937.50 would be your down payment amount.
Confusing, right? Your loan officer can help you better understand these complex rules.
And its possible you wont run up against these loan limits at all.
For example, if you were buying a home that costs only $200,000 and you were already using only $50,000 in current entitlement, youd have plenty of room left for the VA to insure another no down payment loan.
Can I Buy A Mobile Home With A Va Loan
Technically, youre able to buy a mobile home and the property you put it on with a VA loan. However, these mortgages are tricky, and youll have a difficult time finding a lender thats willing to approve you for this.That being said, these programs are available with a few VA lenders. If you are looking for this type of loan, the best thing to do is get in touch with multiple lenders.
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Can You Buy A Multifamily Home With A Va Loan
Buying a multifamily home with a VA loan comes with several benefits. For instance, you dont need to pay for mortgage insurance and theres no down payment required in most cases. You can buy up to four units with a VA loan, with the exceptions of joint loans that may allow you to buy more.
Be ready to become both a landlord and a homeowner quickly, though. You may have to move into one of the units within 60 days after the loan is closed and make the unit your primary residence and live there for at least the first year.
Using Rental Income To Qualify For A Va Loan
Many buyers come to the table thinking they will be able to use their future rental income to qualify for their VA home loan.
For example, if your mortgage payment is $3000 and you will make $1500 a month in rent, youd only need to qualify for a $1500 a month mortgage. The problem is, you may have a hard time assuring your lender that this income is stable and steady enough to count on.
Some lenders may count future rent as an effective income if you can prove your history as a landlord and have at least two years of experience under your belt.
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Va Loan Types Eligible Properties You Can Buy With A Va Loan
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VA mortgages are available to eligible veterans, who can use them to finance up to 100% of the purchase price of an eligible property, up to VA approved loan limits.
Eligible veterans can also finance the VA Funding Fee as part of the loan.
Because of that arrangement, the veteran can purchase a home with no down payment. The zero down payment loan has largely been eliminated since the Financial Meltdown, for all loan types except VA mortgages.
But o qualify for that financing, the property that you are purchasing must be deemed eligible according to VA property guidelines. Though there are certain types of properties that the VA considers to be ineligible, the vast majority of properties will qualify.
Can You Use Va Financing On An Investment Property
March 19, 2018 By JMcHood
If you are a veteran, you may be eligible for a VA loan. This means 100% financing and flexible guidelines. However, theres one big stipulation you must live in the property. Does this mean you cannot buy an investment property with VA financing?
There is one loophole that we will discuss with you here. If you qualify, it could be a great way to get your experience as a landlord.
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Can I Refinance My Va Loan
Yes. You can refinance a VA loan just like you could any other type of mortgage. The VA guarantees two different refinances: the Interest Rate Reduction Refinance Loan and a cash-out refinance loan. But you dont have to use a VA refi. You could use any other mortgage type, such as a conventional loan, to refinance your VA loan.
Closing Costs And Fees
Home loans generally come with closing costs and fees, and VA loans are no exception. You may be able to roll your closing costs into your mortgage and pay them off over time, rather than up front. Your closing costs may include, but aren’t limited to:
- Courier fees
- Recording fees
VA loans also come with a funding fee. If you’re applying for this type of loan for the first time and you’re not planning to make a down payment on your home, that fee will equal 2.3% of your home’s purchase price. For subsequent applications, it’s 3.6%.
If you’re able to make a down payment, your funding fee will be lower. For a down payment of 5% but less than 10%, you’re looking at a fee for 1.65%, regardless of whether this is your first VA loan. For a down payment of 10% or more, it drops to 1.40% for a first or subsequent application.
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What Is An Investment Property
An investment property is a home that is not your primary residence, and that you buy with the intention to generate rental income or sell for profit. Most commonly, these include one- to four-unit rental homes or houses that you buy to fix and flip. For the purposes of this article, we are not including commercial investment properties like apartments or office buildings.
Can You Use Va Loan For Investment Property
VA loans have established themselves as some of the best investment property loans for veterans as they provide investors with numerous benefits. However, many investors ask whether they can use them for investment homes or multi-unit property.
To answer the question, yes, you may take out a VA loan for investment property.
However, remember that they are designed to help army veterans and military service members to purchase a property they plan to use as their primary residence. As such, investors canât use the loans to purchase an outright investment property. For example, you canât use a VA loan to purchase a home you intend to fix and flip or rent out immediately.
This doesnât mean that youâre entirely barred from earning money from property you financed via a VA loan. If you plan on using a VA-financed home as income property, you may want to see whether you meet these requirements:
Have a Military Service
Military service is the foundation of VA loans. This means that for you to use VA-financed property as an investment, you or your spouse needs to be currently in the military or a veteran.
Thereâs also a cap on the number of days you need to have spent in the military, based on the period you served. The requirements are quite particular depending on whether you were involved in peacekeeping or combat missions.
Use the Property as a Primary Residence
You can play smart and buy a multi-family property via a VA loan and earn rental income.
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Can I Use A Va Mortgage To Purchase Investment Properties
Q: Can I use my VA eligibility to buy investment properties?
A: The answer is “probably not,” or at least “not directly or immediately.”
The VA will not back loans specifically made to acquire investment properties. The intention is that the benefit of the VA home loans program will be used for your primary residence. That said, there is a provision where you can rent out your primary residence and purchase another residence using any unused portion of your original entitlement, if you should have any.
This would generally be done if you moved or were moved due to a change in your permanent change of station . You would use this unused portion to help fund the purchase of a new primary residence, while your “old” residence could be rented out rather than sold.
If the property of your primary residence is a multi-family building and you intend to remain living in the unit and purchasing the others from existing owners, the answer is much closer to yes. You would purchase the home and occupy one of the units. You could move on from there, rent out the unit you occupied and possibly purchase another home using any remaining eligibility. More likely, you would have little eligibility left and would need to refinance to a traditional investment property mortgage, which would pay off the VA and restore your eligibility… and you would have an investment property that was funded by the VA program.
The Va Funding Fee: How Does It Factor Into Investment Properties
Even with no money down, VA loans dont charge ongoing mortgage insurance premiums. This is one of the biggest perks of VA loans when compared to USDA, FHA, and conventional loans.
However, all VA loans have a funding fee that offsets the costs of running the program and allows the VA to not charge an annual mortgage insurance fee.
The VA funding fee is charged as a percentage of your loan amount and varies based on your down payment amount and how many times youve used the VA loan benefit.
VA FUNDING FEES FOR FIRST-TIME BORROWERS
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?
What Is A Va Loan
A VA loan is housing assistance provided by the Department of Veterans Affairs. There are two main types:
- A VA direct home loan is where the Department of Veterans Affairs serves as the lender.
- A VA-backed home loan where you get a loan from a private lender but the government guarantees a portion of it, resulting in a lower interest rate and more favorable terms.
The most popular type is a VA-approved home purchase loan, which allows qualified borrowers to buy or build a new home. Most people use VA loans to buy an apartment or house, but you can also use it to purchase a fixer-upper or make a current home more energy-efficient.
There are even cases in which you may be able to use VA home loans to buy land. However, you have to meet several conditions for it to be an eligible purchase. Well get into the details of that in just a bit.
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The Benefits Of Va Loans For An Investment Property
If other options are available, why would an investor consider using a VA loan for an investment property? There are many reasons, but most notably is the fact that you can utilize these loans with 0% down. While youll still need money for closing costs and fees, you can buy an investment property with literally no down payment. Not everyone will qualify, but it is an attractive option.
With a VA loan, you can also avoid paying mortgage insurance, which is often charged on many other mortgage options. While the cost may be counter-balanced with other fees, this can bring significant savings to your overall investment portfolio.
Its possible to use multiple VA loans at one time. So if you purchase a property, live in it for a certain time, and convert it to a full investment, you can then use another VA loan for your next property either a home you will live in for decades or another potential investment property. This is another significant advantage to using VA loans for investment purchases.
Va Loans For Investment Properties
Why do people want to turn to VA mortgages to buy bed and breakfasts, Air b-n-b operations, and other things like them? The no-money-down VA home loan is one reason. VA mortgages also have no VA-required private mortgage insurance or PMI, which is another way to save money on the loan up front.
And then there is the comparatively low interest rate on the loan. Government-backed mortgages offer an advantage in this way since the government, in this case, the Department of Veterans Affairs, is promising the lender an offset in the cost of the lenders loss if the loan goes into foreclosure.
Buying an investment property with no money down definitely DOES have an appeal to it. But the VA loan program is for residences only. Its true that you can use a multi-unit home purchased with a VA mortgage as an investment property when you live there, too. But buying a house without intent to occupy? Thats not permitted with VA mortgages.
And that is consistent all the way down the line with VA purchase loans. Did you know you can buy a farm residence with a VA mortgage but that only the residential value of the property is considered for the loan? There is no extra money available to buy a farm business, and no appraisal valuation for the non-residence nature of the property.
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Understanding Va Bonus Entitlement
VA loan entitlement rules confuse a lot of borrowers. If you dont quite know where you stand with your remaining entitlement, youre not alone.
Lets start with a review of how entitlement works on a first home purchase: If youre an eligible veteran or active duty service member who does not currently own a home with VA financing, you should have full entitlement. Full entitlement combines your basic entitlement and bonus entitlement.
With full entitlement, you can buy a home with no money down at any price as long as youre approved by your VA-authorized lender. VA loan limits wont affect your loan size when you have full entitlement.