How To Restore Your Eligibility After You Sell Your Home
Its important to know how to restore your entitlement benefit if you want to use a VA loan for a second home. The restoration process is not automatic and must be initiated by the veteran. To be eligible for restoring your entitlement, you must have either sold the home you bought with a VA loan and paid off the mortgage, repaid your loan in full and still own the home or another qualified veteran assumes your loan and replaces their entitlement with yours. If one of these scenarios applies to you, you can request restoration by submitting Form 26-1880 Request for Certificate of Eligibility to a regional VA processing center
In the example above, your remaining entitlement was enough to cover the second home purchase with no down payment. However, if you wanted to purchase a home with a higher value than $310,400 without a down payment, you would need to restore full entitlement.
Using Your Va Loan As An Investment
We sometimes get asked by our loan candidates about if they can use their VA loan as an investment. While the answer to this question depends on what you consider an investment, I can share how I used my VA loan as an investment.
The VA loan can be used to purchase up to a 4-unit house so long as it is owner occupied. These homes are also known as multi-family dwellings, and can be referred to as 2, 3, or 4 family houses. These homes are typically separated units with each functioning as a separate apartment.
In 2008 I used my VA loan to purchase a 3-family home in Massachusetts with 2 out of the 3 units rented out at $1,250 per unit for a total of $2,500 per month that I was collecting in rent. I moved into the 3rd unit and my monthly principle & interest, taxes, and insurance payment to the bank was approximately $2,700.
Through this arrangement I was able to own a home and only pay $200 a month towards my monthly payment. This gave me the opportunity to have my tenants pay down my mortgage while I lived almost free in my home. Fast forward to 2012 and I now live in another home but still own the 3-family and have it fully rented out and clear over $1000 a month in rental income after accounting for my fixed expenses.
Overall, using a VA loan to purchase a multi-family was a great experience that has now set me up with a solid cash flow positive investment. While this was beneficial, it required a lot of work and learning along the way.
Can I Qualify For A Mortgage With Investment Income
When it comes to getting a mortgage, every piece of income used to qualify needs to be thoroughly documented and vetted.
For hourly or salaried employees who receive paycheck stubs, calculating income is fairly straightforward.
But the process is a little more complicated if you want to use investment income for mortgage qualification.
Youre allowed to count dividends and interest toward your income.
But the lender might not count the full amount and it will ask for plenty of extra documents. Heres what to know.
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My Spouse And I Are Both Servicemembers Or Veterans And Are Eligible For Va Home Loans Can We Use One Of Our Loans To Purchase A Vacation Home Or A Rental Investment Property
No, you can’t. VA loans are only for a primary residence.
If two servicemembers each have a certificate of eligibility, a home you buy together still has to be one that you will use as your primary residence. That means that you cannot use your VA Home Loan benefit to buy a second home for investment purposes or for use as a vacation home.
If you already have a VA loan for a property used as your primary residence, it may be possible to use that home as a rental property and use your remaining eligibility to purchase another home for use as your primary residence. Before trying to use this option, though, it’s very important to consult your Regional VA Office for details and confirmation regarding your remaining eligibility.
Homepromise Makes It Easy For Veterans
If you decide to purchase a multi-family home with multiple units, we are here to help! The VA guidelines for calculating income earned from rental units are generous. With HomePromise, we make it easier for Veterans and active military members to qualify. The secret is finding a lender, like HomePromise, who uses just the VA governmentguidelines to approve VA loans. Other lenders use their own guidelines on top of the VA guidelines, making it hard to qualify. Why would a lender do this? Because they are afraid that making loans strictly according to the VA guidelines are too risky. With us, you dont have to worry about strict guidelines that block you from accessing your VA Home Loan benefits.
If you decide to purchase a single family home, live in it, and then move out so you can rent it, HomePromise can also help! It is possible to have two VA loans at once, so you can buy and live in another home with a VA loan while using your first property as a rental. To do this, youll need to qualify with your income and credit score. Dont give up if youre worried about your credit score! HomePromise approves loans for people with low credit scores when other lenders will not. Plus, we are VA mortgage experts, so you can use our website as your personal mortgage research center.
How To Get A VA Loan For An Investment Property
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Follow Through Until Closing
It could take six to eight weeks to go through the full underwriting process. Your lender will check out your personal finances. Your VA appraiser will check out the home youre buying to make sure it meets the VAs Minimum Property Requirements. An attorney will do title work to make sure you can legally own the home.
During this time, be sure youre responding to your loan officers questions and providing any documentation thats requested. Your loan officer should schedule a closing day and time.
Keep in mind youll face a higher VA Funding Fee of 3.6% upfront since this is your second use of your VA home loan benefit.
Other Sba Loans For Veterans
There are other SBA resources for Veterans wishing to start a business or for those in need of working capital and you can find out more about those programs from The Office of Veterans Business Development at: https://www.sba.gov/offices/headquarters/ovbd
Please contact us at 1-800-414-5285 if you need help with a VA business loan. We have had much more success helping existing veteran business owners with commercial property loans that may or may not include additional funds for working capital, business debt consolidation, inventory, etc., and we have helped a lot of veterans get loans at or above 100% of the value of their business property, but if we are unable to help we will do our best to point you in the right direction.
“I am extremely pleased with the loan you helped me obtain. Your service, rates, terms and professionalism impressed me.“
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Va Loans And Investment Property
Using your VA home loan benefit for an investment property is an attractive option for many buyers. However, there are a few key considerations to understand at the outset when it comes to multiunit properties.
Veterans and service members who want to purchase multiunit properties often see it as an investment opportunity. For many people, the idea of having tenants help pay some or even all of the mortgage is appealing.
The Common Issue: Va Loan Occupancy Rules
VA loans are designed to help veterans purchase a home. Homeownership is considered one of the main pillars for financial stability and prosperity, so supporting these loans for veterans is one of the many duties for the Department of Veterans Affairs. But to secure a VA loan, you have to live in the property for a certain period in other words, it is supposed to be your primary residence, at least for a specific time.
However, there are exceptions to this rule, and just because you are required to live on the property does not mean it cant become an investment property that earns money.
With that in mind, there are basically two ways for turning a home purchased with a VA loan into an investment property.
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Rental Property As Income
Becoming a landlord can essentially make qualifying for a VA loan easier. A borrower can use rents from the other units in a multi-unit property to help them qualify for a loan by counting the rent toward income, says Brian Davis, a real estate investor who teaches about rental investing at SnapLandlord.com.
Typically they can add 75 percent of the market rents toward their qualifying income, he says.
The home appraisal can include the market rents in the area, and a borrower doesnt have to always show that they have tenants ready to move in, Stobbe says.
Its best to show you have a tenant signed up, but its not always necessary, she says.
On Using Anticipated Rental Income To Qualify For A Va Loan
If you want to buy a multi-unit home and rent out the unused units, you may wish to speak to your loan officer about what it takes to get anticipated rental income counted as potential qualifying income for the purpose of loan approval.
Your experience as a landlord and other variables will apply herethe lender may or may not approve this depending on that as well as the lenders standards and state law. It is possible in some cases, and not possible in others, but it never hurts to ask.
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Planning To Buy Second Home From Va Loan
VA loan is a good option that a veteran has in order to invest in property at an age when his income is not good enough to take loan from other financial authority. Because of the repayment risk, not all the leading financial institutions are keen to provide loan to veterans.
However, when a borrower applies for VA loan, the first criterion is that the loan needs to be taken for the borrowers primary residence. Usually the loan is not provided if the borrower already has a primary residence. However, as with any process, there are certain exceptions in this as well. Let us look at all the exceptions and loopholes which exist for VA loans:
Acceptable Va Loan Uses
The VA loan program was created to help open the doors of homeownership to more veterans, military members and their families. This program focuses on helping qualified borrowers purchase residential properties theyll live in as a full-time home.
Lets take a closer look at some of the acceptable and unacceptable uses of VA loans.
Acceptable uses include:
- Buying a single-family home. The single-family home is the bread-and-butter of the VA loan program. Single-family homes are a great option for a multitude of buyers, and theyre the most commonly purchased property of VA loan recipients.
- Buying a condominium unit in a VA-approved development. Condo developments need to be approved by the VA. Your lender and a VA-savvy real estate agent can help you identify suitable properties if youre searching for condos. With help from your lender, you can ask the VA to approve a development that isnt on the list. But understand that process can take months to complete.
- New construction. The VA also allows for a $0 down VA construction loan to build a new home. But its difficult to find lenders willing to actually fund the construction of a new home in todays economic environment. A more common approach is to obtain a construction loan from a builder and then refinance the short-term loan into the VA program.
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Does Rental Income Help To Qualify For A Va Loan
In some cases a borrower using a VA loan may be able to use the existing or projected income from the property being purchased to help meet the income requirements a lender has for a borrower. A lender will generally count 75% of a propertys rental income as part of a borrowers total income.
To illustrate, assume that a 3-unit triplex has a history of generating rental income of $1,000 per month per unit. Remember that to qualify for a VA loan for the multifamily rental property, the borrower will need to live in one of the units as a primary residence. The rental income from the remaining 2 units will be $2,000 per month or $24,000 per year.
If the borrowers regular income is $50,000, a lender may add an additional $18,000 to the borrowers total income for a total income of $68,000 when reviewing the loan application.
Some VA lenders may also have other restrictions for a rental property loan.
For example, a borrower may be required to have up to 6 months of cash on hand to pay the mortgage and property expenses. Also, lenders may require that rental income from any current tenants be provable by using bank statements or tax returns as evidence the rental income was received.
Sba Loans For Veterans Benefits
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Veterans Spouse Or Dependent Child
Some active military members are VA loan eligible but are on active duty and away from their place of permanent residence. If this is the case, the spouse or dependent child of the VA member can occupy the house and satisfy the occupancy requirement.
Also, if the VA home buyer is no longer in the military but is temporarily away for work reasons, a spouse or dependent child can also satisfy the occupancy requirement.
Can A Va Loan Be Used To Buy A Rental Property
VA loans are intended to help current and former service members and their surviving spouses purchase a primary residence. However, its also possible to use a VA loan to buy a rental property, provided that specific guidelines are met.
While there may be some hoops to jump through, the advantages of buying a rental property with a VA loan include no minimum credit score and a 0% down payment by working directly with the Veterans Administration instead of a conventional lender.
In other words, a veteran may be able to purchase an investment property using 100% financing, use rental income from tenants to pay the mortgage and property expenses, and benefit from the numerous tax deductions that real estate investors enjoy.
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Be Ready To Prove Your Income
Regardless of the type of income you plan to use for mortgage qualifying, be prepared to document it extensively.
And, although income generated from investments is just as good as income received from a job, documenting it can be a bit trickier than other sources of income.
Ask your lender up front for the type of documentation that will be required, and make sure you have it ready to go when the time comes.
Additional House Hacking Considerations
What makes house hacking such an outstanding strategy for new real estate investors also has an inherent drawback, that is, youre living in close proximity to your tenants. This means that, if you have a disagreement with a tenant, that disagreement will linger immediately next door to your home.
For some veterans, this reality isnt a problem, as they can effectively compartmentalize personal and professional lives. However, before pursuing a house hacking strategy, veterans should honestly consider whether theyre suited for the additional stress of A) acting as a landlord, and B) having tenants either living in your home or next to your home.
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