Can You Buy An Investment Property With A Va Loan
Like all federally backed loans, the VA loan was created to make a primary residence more affordable. Because of this, you generally cannot use VA loans to purchase an outright investment property. This does not mean you cannot make any income from the property, but it cannot be the primary reason you purchased it. Should your lender discover otherwise, later on, it may recall the loan.
What Is a VA Loan?
This type of mortgage loan was created specifically for qualifying military persons. These include active-duty service members and veterans. The VA determines the additional qualifying factors and issues a certificate of eligibility to confirm to a lender that it will guarantee the loan. This means that if a borrower defaults on the loan, the VA will pay a portion of that back to the lender. This reduces risk to the lender, which makes it easier for military persons to purchase homes.
What Can You Use a VA Loan For?
VA loans are one of the most versatile mortgage loan programs on the market. In fact, purchasing properties is just one of the purposes you can use it for.
How Can You Make Money From a VA Loan Property?
Even though you generally cannot use a VA loan to purchase an outright investment property, there are several ways you can use this loan to make money. Note that these are not recommendations, but rather, an acknowledgment of ways military persons have generated incomes using VA loans.
Why Choose a VA Loan?
Can I Get A Va Streamline Refinance On My Investment Home Which Has A Current Va Mortgage
You can get a VA streamline refinance on an investment property under certain conditions. In a refinance, an existing loan is paid off with a new loan. The definition of a streamline refinance is that the underlying loan program stays the same on the new loan as it was on the old loan. This is true of VA loans, just as it would be for another type of loan. VA offers an exception to their occupancy rule on a streamline, because they already guarantee a loan on the property.
How It Actually Works
As of this writing, there is a 3,700 square foot duplex in Las Vegas, NV with a sale price of $315,000. The second unit provides $1,400 a month in rental income.
Assume that you put zero down and finance $315,000 plus a $6,772 VA Funding Fee. Your total monthly payment, including taxes and homeowners insurance, would be about $2,000 with a 4.5 percent mortgage rate.
If you dont count the rental income towards your mortgage qualification and have no other debts, youd need qualifying income of $4,878 a month to get loan approval. Thats because the VA allows up to a 41 percent debttoincome ratio, which is your monthly debt payment divided by your monthly gross income.
If you are able to use the rental income to qualify, you get a different picture:
- The lender would offset the mortgage payment by 75 percent of the rental income
- 75 percent of $1,400 is $1,050
- Subtracting $1,050 from your $2,000 mortgage payment gets you a payment of $950
With no additional debts, your income required to qualify drops to $2,317 a month.
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How To Successfully Cash
Real estate investors who purchased rental property over the last few years have seen home values rise and equity increase. With the demand for good rental property as strong as it is today, many investors believe that the time is right to start growing a real estate portfolio.
Tapping into existing equity is one way investors can raise money for the down payment on another rental property. Keep reading to learn more about how a cash-out refinance on a rental property works and the process for refinancing a rental property.
- Cash-out refinance on a rental property turns accrued equity into cash for reinvestment.
- Rental property refinance loans may have slightly higher interest rates, fees, and lower loan-to-value ratios.
- Obtaining a cash-out refinance rental property loan can be a good way to raise capital for additional investments.
- Delayed financing exception allows investors who originally purchased a property with cash to do a cash-out refinance right away.
Contact A Home Loan Expert
Its helpful to talk to an expert if you decide that a VA Streamline is right for you. Rocket Mortgage has Home Loan Experts who are ready to talk you through a VA Streamline with your specific financial profile.
Have you found that you dont qualify for a VA Streamline refinance and want to know your options? A Rocket Mortgage Home Loan Expert can help with that, too.
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What Va Home Loans Cannot Be Used For
In this context, even if the borrower lives on the property secured by the VA mortgage as the primary residence, the property cannot be used to operate an Airbnb, hotel, bed-and-breakfast, or other businesses that have a rental occupancy for 30 days or fewer.
The property MUST be used as a residence, even if there are other commercial interests involved. The residential nature of the home must always come first with a VA home loan. This will play an important part in how the VA loan rules and your lenders requirements will be used to interpret your intended use of the home, especially if you want to rent to others.
Requirements For Investment Property Mortgages
Investment property loan lenders tend to consider rental units a higher risk than owner-occupied dwellings. This is because the landlord profession itself can be risky. If a tenant stops paying the rent, a landlord may stop paying the mortgage. So, investment property buyers need a good or excellent credit score, as well as a larger down payment than for a conventional mortgage. You also need to have a good debt-to-income ratio and proof of a steady income. Investment property loans may also have a slightly higher interest rate compared to mortgages on primary residences.
F& M is proud to be one of the local banks that offer investment property loans. We know that a robust rental market contributes to a thriving community. Thats why we we work with investment property buyers to create an investment loan that works for your budget and needs. Our local ownership gives us more flexibility with loan terms and decision-making than bigger banks.
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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.
Fund Almost Anything Else
Unlike some other types of loans, there are no limitations on what you can do with the money you take away from a refinance. You can:
- Grow a childs college tuition fund
- Boost retirement savings
- Invest in an up-and-coming stock or company
- Consolidate and pay off credit card debt with a lower interest rate
- Pay off medical debt
- Continue your education by enrolling in college or university courses
- Fund repairs or upgrades on your personal residence
- Take a dream vacation
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Va Refinance Loans: Two Types
You can lower your rate, tap into your homes equity or even bring your conventional loan into the VA loan program with a VA loan refinance.
You can refinance your mortgage two ways:
With a VA streamline refinance, also known as an Interest Rate Reduction Refinance Loan, or IRRRL.
With a VA cash-out refinance.
Choose this VA refinance loan if you:
Already have a VA mortgage.
Want to refinance to a lower interest rate to save money or refinance to a fixed-rate mortgage from an adjustable-rate mortgage.
Don’t want to take out any cash from home equity.
The Interest Rate Reduction Refinance Loan “is envisioned as a low-impact, no-frills refinance that exists to get veterans into a lower interest rate,” says Chris Birk, director of education with Veterans United Home Loans in Columbia, Missouri.
To refinance into an IRRRL, you must already have a VA mortgage. Also, the rate must be lower on your new loan, unless youre refinancing out of a VA loan with an adjustable rate.
Unlike with most other refinances, your home doesnt have to be your primary residence. All thats required is prior occupancy. If youre stationed in a new area and want to keep your first home, for instance, you can refinance that mortgage without living in the home.
The VA streamline loan also gives you the option of wrapping the closing costs into the new loan.
Choose a VA cash-out refinance loan if you:
The only way to bring a conventional loan into the VA program is with a cash-out refinance.
Qualifying For Your Va Home Loan
When you qualify for the VA mortgage, you are permitted to apply for a VA Certificate of Eligibility which establishes you as an eligible VA loan applicant.
Your ability to apply for a VA mortgage should not be confused with the loan approval. All who apply for VA loans must financially qualify the same as with any large line of credit. All VA loan applicants must submit income, employment, and credit qualifying information to be approved for a VA mortgage.
VA Loan approval is offered to those who apply who are also financially qualified. In short, you can qualify to APPLY for the loan, but keep in mind that VA loans are not automatically approved for all applicants.
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What Is An Investment Property Loan
An investment property loan is money you borrow to buy or build a property that has the potential to produce income for you by leasing the space out to a tenant, or by re-selling it after you increase its value.
Investment property loans include construction, purchase, and rehab. Investment property loans are not just for single-family homes. If you want to buy an apartment building or an office tower, you would use an investment property loan.
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.
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Is Va Streamline Refinancing Right For You
To take advantage of IRRRL refinancing, you need to have a current VA loan and replace it with a new VA loan. You can also refinance a VA loan with a conventional loan.
To learn more about your loan choices, see our comparison below. Freedom Mortgage offers refinancing with conventional, FHA, and USDA loans as well as VA loans.
Get More Information From Our Lending Team
When considering using your VA Loan, its important to consult with professionals. ADPI Financial is here to help you with your VA Loan purchase. We have brokers and loan officers in dozens of states, and we are continuing to grow every day! Let us work hard to earn your business and get you started in your real estate investment journey!
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Va Cashout Refinance Guidelines For 2022
To qualify for a VA cashout refinance, youll need to meet minimum guidelines set by the Department of Veterans Affairs and by individual lenders. Expect to need:
- A credit score of at least 580620
- Stable income and employment
- A debttoincome ratio under 41% in most cases
- Sufficient home equity if you plan to take cash out. Some lenders require you to leave at least 10% of your home equity untouched
You must also have an eligible military service history in order to use the VA loan program.
Youll establish this by getting a Certificate of Eligibility . Eligibility depends on the amount of time served, and the period in which you served.
Youre probably eligible for a VA loan if youve served:
- 90 days in wartime and are now separated
- 90 days and are still on active duty
- 181 days in peacetime and are now separated
- 2 years if enlisted in the postVietnam era
- 6 years in the National Guard or Reserves
- Or, if you are a surviving spouse
Eligibility can also be established for other service members with a nondishonorable discharge.
VAapproved lenders can check eligibility, often within minutes, via direct online requests to the Department of Veterans Affairs.
If you have any U.S. military experience whatsoever, its worth checking your eligibility for a VA loan. Remember, you can use the VA cashout refinance to get a new loan, even if your current mortgage is not backed by the VA.
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Yes You Can Use A Va Loan For Investment Property
At its heart, the VA loan program is designed to help veterans and military members afford a home they intend to use as their primary residence. As such, you can’t use the program to buy an outright investment property, meaning one you plan to fix and flip right away or one you intend to rent out wholly.
That doesn’t bar you from earning money from a VA-financed property entirely, though. To use a VA loan for an investment property, you’ll need to meet the following three requirements:
How To Get A Va Funding Fee Refund
Your Certificate of Eligibility will state whether or not youre exempt from paying the fee. There will be cases, however, where there is a pending disability claim when the loan closes.
If your pending claim is later approved with a retroactive date before the close of the loan, you will be eligible for the VA funding fee refund. You may also be eligible for the refund if you have no claim pending at closing, but later have a disability claim approved that is retroactive to a date before loan closing.
This could spans years. It is even possible to request a refund after a loan has been entirely repaid.
Since this fee is paid to the VA, they determine refund eligibility. You can start the process one of two ways:
You are usually reimbursed depending on how you paid the fee. If you paid in cash, you will be reimbursed in cash. If you rolled it into the loan, your loan amount will be reduced by that amount.
I have two great links given to me courtesy of Doug Nordman at the-military-guide.com.
The first one is the VA handbook itself. Tons of info if you really want to get into the weeds:
The second link is the specific chapter inside the handbook that explain to VA employees how to process VA funding fee refund requests:
Feel free to comment at the bottom of this post if you have questions about this.
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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.
Things To Know Before Refinancing A Rental Property
There are three things about refinancing rental property that real estate investors should be aware of:
1. Interest rates and fees
Interest rates and loan fees are usually slightly higher than refinancing a primary residence.
Thats because banks generally view an investment property loan as having more risk than an owner-occupied home, and lenders use higher rates and fees to compensate themselves for taking additional risk.
2. Maximum LTV
Lenders typically allow a maximum loan-to-value ratio of 75%, which means that you need to have more than 25% equity in your rental property to do a cash-out refinance.
For example, lets consider a rental property with a current mortgage balance of $75,000 that appraises for $145,000. Your equity is $70,000 , but youll need to keep some of that money in the rental property when you refinance it.
Based on an appraised value of $145,000 the maximum refinance loan you could qualify for would be $108,750 . The difference between the appraised value and the new loan amount is $36,250 , which is the amount of equity you would need to keep in the property.
So, instead of having usable equity of $70,000, the actual cash you have available to reinvest would be $33,750 .
3. Refinancing rules
The rules to qualify for a rental property refinance are more stringent than refinancing your primary residence:
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