VA Loan and a military transfer, How do I get another house?

Question

I bought a condo for 262k of my 417k VA Eligibility, I'd like to by another home at my new duty station (PCS orders). I'm trying to buy a home or two at each duty station until I leave the Military, I also am having a DTI problem. I'm trying to think of a way to clear this up without selling my house that I just bought last year. I thought that starting an LLC and transferring title could be an option, but I'm not sure if it's legal.

I kind of wish there was a forum on BP just for us military guys, cause I can't be the only one with this problem. @Joshua Dorkin

Albert Bui · Answer

HI Jarrod,

Your concern seems to have two parts:

1) DTI - debt to income qualification issue - you can either bring on a spouse for more income, rent out the prior house to create income to offest the prior home's payment, or other strategies

2) VA eligibility for second and subsequent use -

-  If you're in a 417k limit area and you use 262 then that approximately means you'll have 155k or percentage use of the VA entitlement remaining. 155k / 417k limit or about 37.17% of a county's entitlement left. This means that you in that specific county you could buy 0% down up to 155k and if you had a sales price over this 155k you'd have to bring in 25% of the difference. Example - 350k fourplex purchase - 155k entitlement = 195k difference X 25% = $48,750 down payment from veteran needed + closing costs/prepaids/etc to close.

Eventually you'll run out of entitlement so you'll have to strategically plan your acquisition cost  values with your exit values when you plan to leave the property so that you can refinance your VA loans into FHA or conventional to "free up," your entitlement to 100% of the county limit once again.

Proper mortgage planning will be critical.

Hope that helps.

Albert Bui · Answer

This is true Juan subsequent use is 3.3% if the veteran wants to buy with 0% down and during first use its 2.15%. This is a big difference especially for the Oceanside market since the the average home is around 280-400k  so 3.3% is around 9000-13000 dollars.

This can't really be solved since the VA requires what it requires to do the loan however with a modest 5% down on first or subsequent use the veteran can reduce their VAFF down to 1.50%.

Obviously, the 5% down helps the subsequent use the most going from 3.30% down to 1.50% is a reduction of 1.80% less thats charged to use this great program.

Juan Cristales · Answer

@Jarrod Rayner

I'll simply add something that I was unaware of the second time I used VA for a personal residence: the VA Funding fee goes up, substantially (from 2.15% to 3.3%).  Substantially for me due to the market I was buying in and I'm not versed in your new duty station's price point for what you are looking to invest in.  So it may or may not affect you much because as they say here on BP: a Deal, is a Deal, is a Deal (even with a 3.3% additional).  Good luck brother!

Here is the link to the table: http://www.benefits.va.gov/homeloans/documents/doc...

Albert Bui · Answer

There are also specific rules on how to get your rental income to be used with FHA, VA, and conventional when departing an existing "primary residence," that you might want to know about.

- VA - no equity in the primary residence is required to use rental income offset and depending on who the investor is on the note you should not require 2 year land lord experience as well (documented by tax returns or third party verification).

The key distinct advantage of VA rental income offset is that its not discounted which means you can use 100% of the monthly gross income to offset your current PITIA (monthly principal/interest/tax/insurance/assessments of your current residence). The downside of the VA rental income offset is that this number cannot be positive. Rental income offest can only "0," out your current residence's obligation.

- FHA - some lenders may require you to have 25% equity in your current primary to use rental income offset and have reserves in both properties but it depends on who the ultimate investor is because I have not seen in the FHA guidelines that equity is required so that means this requirement is mainly an overlay from that particular bank not necessarily FHA's requirement. With FHA rental income offest is calculated at 75% of gross minus PITIA of the property (prin/int/tax/ins/assessments monthly) to determine income or liability to qualify for.  FHA rental income offset if positive "net rental income," can be added to qualifying income.

- Conventional - used to require 30% equity and 2 months of reserves on both properties to use rental income to offset your current PITIA payment. If you dont have the equity (documented by appraisal) then you have to qualify for both mortgages (you need a lot more income) and you need 6 months reserves on both properties.

As of July 1st 2015 FNMA lifted this equity requirement of 30% equity so that means you can use rental income offset with out the cost of 2nd appraisal of your current residence. The reserve requirement also was dropped by to the normal 0-2 months instead of 6 months.

Conventional uses 75% of gross monthly rent minus PITIA to determine net income or liability to qualify for. Conventional net rental income if positive can also be added to income unlike VA "0," max.

Not that you want to be your own loan officer but its important to know the pro's and con's of each product above and how qualification is determined so you can transition from one to the other so you can seamlessly invest with out lending hassles. The downside with the above is it requires great foresight and mortgage planning.

Jarrod Rayner · Answer

Here are the VA/FHA Loan limits by county for any BP member who would be interested.

http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp

Jarrod Rayner · Answer

So the county I'm moving to the one unit limit is $417.000 but the county I'm coming from is $625,500. I cant find which county has precedence or if there is a middle ground formula. It looks like its the same rules as FHA.

Albert Bui · Answer

Yeah, I am not in all places however there are other loan officer's on my team that could work on your file together.

I mainly focus on CA, and WA markets. The reason I have TX/TN is because I was sourcing deals for myself in those markets and I have a couple builder and clients in those states.

Hope the info has been helpful.

Jarrod Rayner · Answer

You guys are great, thanks for the help! There should be positive monthly cash flow around +$250-$300. I plan on making a bank account for the property and not touching it until I retire from the service. @Albert Bui I wish your title read
Mortgage Planning Specialist NMLS#345453 - CA, WA, TX, TN, SC, VA

Albert Bui · Answer

You can use it right away with a 1 year lease agreement and a copy of the security deposit from the tenant to show that you've deposited the security deposit.

No Landlord experience needed.

if rent is 1000 and your mortgage is 1000 then your net rental income is "0." This in essence means you dont have to qualify for this home any longer and can focus on the new subject property.

Jarrod Rayner · Answer

My plan is to rent it out, but I'm not sure the income can be counted for a while. I may be wrong about the 417k. Since my orders are to a different county or even if there is now a multi-county clause.

VA Loan and a military transfer, How do I get another house?

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