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.
The Two Ways You Can Use A Va Loan For Investment Property
There are many ways to purchase an investment property. You could use loans designed specifically for investors, or you could, if you have the funds, purchase the property outright.
But there is one strategy that often gets overlooked: VA loans.
While not meant for investments, VA loans can be used for this type of purchase, and you may find that these loans are perfect for your overall investment strategy.
What To Consider Before You Become A Landlord
If you choose to turn a property into a rental, youll be taking on the responsibility of becoming a landlord.
With that responsibility comes more complex tax returns, as you will have to report rental income and capital gains taxes if you sell an investment property down the road. But you may also be able to deduct expenses related to the marketing and maintenance of your rental homes.**
My suggestion would be to talk to a tax professional, Bendebba says.
Along with a more complex tax profile, landlords also have other responsibilities.
As a landlord, youll have to:
Even if your portfolio includes only one or two homes, youll need a way to deal with these sorts of jobs.
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Can A Va Loan Be Used For An Investment Property
Because VA loans have fewer restrictions than conventional loans, many borrowers wonder if a VA loan can be used by real estate investors. In some cases, it may be possible to use a VA loan for an investment property, as long as all of the rules are followed.
Rule #1: Military service
A borrower must be a Veteran or an active service member that meets certain eligibility requirements based on service.. National Guard and Reserve members may qualify for a VA loan, as well as surviving spouses of a Veteran or of a Veteran missing in action or held as a prisoner of war.
Rule #2: Primary residence
Property must be occupied by a borrower as a primary residence in order to qualify for a VA loan. However, a borrower may be able to house hack by renting out a room in a single-family home, a detached apartment on the same lot, or non-owner occupied units in a multifamily property.
Rule #3: One to four unit property
A VA loan may be used to purchase a single-family home or duplex, triplex, or fourplex multifamily property. A single-family home may also qualify for VA financing if there is a separate rental unit on the same lot, such as a free standing garage converted into a studio apartment.
Va Mortgage Closing Costs
To boost your reserves after closing, you may have to minimize your closing costs. There are several ways to do this.
You can have the seller pay your closing costs instead of asking for a lower purchase price. For example, instead of offering 97 percent of the asking price, make a fullpriced offer and ask for a 3 percent credit toward your closing costs.
You can also have your mortgage lender cover these costs in exchange for charging a higher mortgage rate. In general, every point credit towards closing costs increases your interest rate by .125 to .25 percent, depending on the lender.
Finally, instead of paying the VA funding fee, which insures your loan, you can wrap it into the loan amount. In the example above, the funding fee was wrapped into the loan. This does increase your payment, but allowing your rental income to offset your payment makes qualifying easier.
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S To Buying A Multifamily Home With A Va Loan
1. Ensure that you meet the minimum service requirements. If youre a veteran, an active-duty service member or a member of the Reserves or the National Guard, youll need to apply for a Certificate of Eligibility online, by mail or through your lender. Thats the proof to lenders that you qualify for the VA-guaranteed loan benefit. Surviving and other eligible spouses may also qualify.
2. Check the multifamily loan limits in your area. Even though the VA doesnt limit the size of the multifamily loan you can get, lenders typically have additional requirements for loans that exceed the local conforming limits. In general, youll likely see limits of $981,700 for a four-unit multifamily home, $789,950 for a triplex and $653,550 for a duplex without the need for a down payment. In higher-cost counties, the limit goes up to $1.47 million for a four-unit home.
3. Know the VAs minimum mortgage requirements. In order to get a VA loan, youll need to meet certain VA loan requirements, including:
4. Study the minimum property requirements in your area. To protect the interest of VA borrowers, lenders and other parties, the VA has a list of requirements to help ensure properties are structurally sound and safe. There may be additional local property requirements, too. For instance, in Hawaii, your property needs to undergo wood-destroying insect inspections.
How Do I Qualify On A Va Loan For Investment Property
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!
If your plan is to rent out a second home that youve lived in for at least a year, the key to qualifying is finding a lender who will approve you for two VA loans at once. Some lenders may deny you based on your credit score or because they fear that your rental income will not be consistent. But HomePromise may approve you when other lenders will not!
How To Get A VA Loan For An Investment Property
Why Choose HomePromise?
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Compare A Va Loan To Other Types Of Loans Too
Just because a VA loan is an option for you, you may still end up in a better situation with another type of conventional mortgage or another type of government-backed loan.
Heres a quick list of comparisons you may want to educate yourself on before you make that final decision:
What If You Have To Move
VA home loans are meant for buying primary residences, and arent intended to buy vacation or rental homes. Thats why the VA requires the borrower to use it as their primary residence.
Transfers, however, are common in the military. The main reason active-service military members buy a home is job relocation, at 33 percent, according to the National Association of Realtors.
A VA loan borrower can then either sell the home or can rent it out which may be easier by hiring rental management company.
Another option is to have a new buyer take over the loan. VA loans are assumable by a new buyer or family member if the borrower wanted to move out or sell the property, Davis says. Most conventional mortgages arent assumable, he says.
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Va Adaptive Housing Grants
Disabled veterans may have distinct needs when it comes to housing. That can prove a challenge during the house-hunting stage. The VA has two grant programs that can help veterans with certain permanent and total service-connected disabilities build or modify a home to best meet their needs.
One is the Specially Adapted Housing grant, and the other is the Special Housing Adaptation grant. Renovations and modifications can include accessible bathrooms, bedrooms and kitchens specially sized doorways garages and carports retrofitted faucets and showerheads ramps and banisters and a host of other important changes.
The maximum dollar amount available for these grants is set by law but can change annually depending on construction costs and other factors. Veterans interested in exploring the SAH and SHA grants can apply online through the VA’s eBenefits portal or contact their nearest VA regional office for more information.
Limitations On Real Estate Investing With The Va Home Loan
Whats not to like? No down payment. Low interest rates. No PMI. Why wouldnt veterans use the VA home loan to invest in real estate? Well, before investing, veterans need to first understand the limitations imposed by the Department of Veterans Affairs, as this loan product is meant to support homeownership, not investing.
- Occupancy requirements: The first thing veterans need to understand about using the VA loan to invest in real estate involves occupancy. As the VA wants to promote homeownership, it mandates that veterans actually live in the VA loan-purchased home for a certain amount of time. Though the specifics can be adjusted on a case-by-case basis, this typically means that borrowers need to move into a home within 60 days of loan closing and live there for at least a year.
- Safe, sound, sanitary appraisal: Once again, as the VA wants to promote homeownership with its loan program, it imposes more stringent appraisal standards than most other loan products. This means that homes purchased with a VA loan need to be actually habitable, that is, not in need of significant maintenance or improvement . As such, investors pursuing a typical fix-and-flip approach will likely not qualify, as these sorts of homes tend to need too many repairs to meet the VAs standards.
Now that you understand its inherent limitations, we can discuss three available strategies for real estate investing with the VA loan.
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Can I Get An Sba Loan For Rental Property
The SBA 504 loan is the best choice for buying commercial property. Money can be used to buy a building, finance ground-up construction, or rehab an existing building. With the SBA 504 loan, you are likely to have the lowest interest rates and a 25-year repayment term.
Borrowing limits are normally $2 million for commercial property. Key requirements of this loan include the owner must occupy 51% of an existing building or 60% of a new construction building.
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.
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Alternatives To Using Va Loans For Investment Properties
If you dont plan to purchase a new primary residence with a VA loan in the near future, or you opt not to purchase a multifamily property in which youll live, you can apply for a conventional investment loan.
With an investment loan, you dont need to worry about occupying the property for any amount of time. But you will need a high down payment up to 25% if you buy a quadplex. Youll also need at least a 620 credit score, though some lenders may require scores of 680 or above for an investment loan.
Additionally, investment loans have higher interest rates than loans for owner-occupied properties, whereas interest rates for VA loans tend to be among the lowest in the market,
Can I Use A Va Loan To Buy A Vacation Home
Because you can only use a VA loan for a primary residence, you cannot use a VA loan to buy a vacation home, unless you plan to spend the majority of the year there or you plan to live in the home upon retirement within the same year of purchasing it. However, one workaround is to use your old home as a vacation home and the new home as your primary residence. In this case, you would need to be able to keep up with both mortgages.
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Who Is Eligible For A Va Loan
You must meet at least one of these requirements to qualify for a VA loan:
- Be an active member of the military, or be an honorably discharged military veteran
- Put in 90 consecutive days of active service or more during a period of war, or 181 consecutive days of service or more during a period of peace
- Have more than six years of service in the National Guard or Selective Reserve
If you have a spouse who died in the line of duty, you may be eligible for a VA loan as well, even if you never served yourself.
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.
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Can You Buy A Multiunit Property With A Va Loan
The good news is you can look to buy a duplex, a triplex, or a four-plex using your VA home loan benefits. However, the property purchased cannot be used solely for investment or rental purposes, and one unit must be your primary residence.
Homes In Approved Condominium Complexes
The VA must approve condominium complexes before veterans can use a VA Loan to purchase a home in that complex. T
his requires the complex to go through a VA approval process, which includes reviewing the complexs organizational documents and bylaws, homeowners association policies, budget and finances, parking availability, and more.
The VA also maintains a list of approved condo complexes. This can come in handy when you are considering buying a condo. You will need to work with a VA Approved Lender if you do not find the condo complex on the VA list.
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Purchasing A Multiunit Property
The other option for using a VA loan for investment property is to buy a multiunit house. With VA loans, and many other government-backed loans, you can buy a property that has up to four units, giving you the chance to not only purchase a property for yourself, but to purchase a property that will bring an income.
If you use this strategy, you are not free from the occupancy requirements you still have to live on the property for a certain period. But you only need to occupy one unit.
Suppose you were to purchase a duplex. On one side, you can live on the property and make it your home on the other side you could have a renter who is paying you a monthly income. After a certain period, you can move out and turn the entire property into an income-generating investment.
There are rules for these properties that come from both the VA and the individual lender. First is the occupancy rules which we have discussed. You will also be limited to properties that have four units or less if it has five units, the purchase is off limits and youll likely need a commercial loan. The VA also has specific details for the nature of the property. For example, all units must be accessible without passing through other units, and the property must be primarily zoned for residential occupation. The utilities need to be separate, but certain facilities like laundry can be shared.