House hacking - VA vs Conventional Loan

[Account Closed]

Hi all!

I'm curious about the difference between VA loan and conventional loan when it comes to house hacking in a 3 or 4 plex. I'm more interested in the actual act of borrowing, not so much the numbers involved with it.

I've read that lenders take a bit longer with multi-family than SFH, as well as with VA loans vs conventional, although I'm sure this varies lender to lender.

For those who have gone down the 3 or 4 plex route with a VA loan:

-Did you have any lending difficulties due to it being a multifamily? 

-What made you go with VA loan over conventional loan?

-If you were to do it again, would you choose VA or conventional?

Thanks in advance, I'd really appreciate any feedback!

[Zack Karp]

@Account Closed

First off, there is no difference in underwriting time between a VA, FHA, or Conventional loan, or a SFD vs a 2-4 unit. As long as the LO/lender knows what they are doing.

Ok time for some next level stuff...

Strategically, if you are looking to house hack several properties, there ABSOLUTELY is an order in which you should utilize your financing, so that you don't get stuck. The reason is due to each of the different lending guidelines for Conventional, FHA, and VA, and how you need to qualify for each subsequent property.

You should use FHA first. The reason is that when qualifying for a future property with FHA, in order to use rental income to qualify from the vacating property, there are guidelines.  First, to use income from the unit you are vacating, you would need to relocate 100 miles away.  And to use income from the other units, you would need to pay for a new appraisal on that property to prove that you have 25% equity in the property.  Pretty tough to gain that much equity in 1 year unless you're doing a major rehab.

Then use VA second. Also this helps because in order to use rental income from the other units to qualify for a VA loan, you must have prior landlord experience. So having a property under your belt satisfies this. (There also is a workaround that you can hire a property manager to satisfy the landlord experience).

Then use VA again third. Wait, what? Yes, you will have secondary/bonus entitlement, and be able to use VA again, without having to refinance that last property out of VA. The max amount of this property will depend where you buy, and how much entitlement was charged on the first VA loan.

Now, you will have 3 properties and up to 12 doors under your belt, in a little over 2 years if you house hack each year (you need to occupy the property for 1 year to satisfy the primary residence terms of your Mortgage).  By this time, hopefully you have done well, and you will have a lot more options...

Then for the next property, you can buy a SFD with Conventional with 5% down. Or perhaps one of your first 3 properties did well enough that you have 25% equity in one of them to refinance to Conventional, and free up your FHA or VA eligibility again. Or perhaps now you have saved up enough to put 25% down on an investment 2-4 unit with Conventional financing.

Hope that helps :) You have a very unique opportunity as a Veteran with the VA loan. Mapping out this strategy can be the difference between one-and-done, and a successful run at real estate investing. This is the difference of working with a LO who specializes working with investors and house hackers.

TYFYS and best of luck!