Should I use my VA home loan to invest while living at home?

Question

Hello all, I’ve been hesitant to actually post anything in the forums, but I feel like I need help from a group of like minded people. I’m currently living with my in-laws (and actually happy). I have a decent job, no debt, and a decent amount in cash reserves. I am a veteran and was thinking of using my VA loan with lower interest rates right now to purchase a duplex, tri-plex, four-plex to possibly brrr, or justo rehab and hold. Like I said before I’m actually happy at my in-laws, so I don’t want to move. I’d be happy leaving one of the units vacant for myself under the VA loan. The reason I want to use my 0% down VA loan and not an FHA or conventional loan is to keep my cash reserves in case something goes wrong (being that is is my first deal). Can anyone tell me if this is something that can still work, even if I leave one unit vacant? Or if I should refinance later and utilize a different loan down the road? Any advice would be great, thanks!

Anna Laud · Answer

@Stephen Foote

Hi Stephen!

My reply will come in  a few different steps here; your VA benefits, your reason why this should not be done (leaving one unit free) and alternative suggestions!

1.) There's not a limit on the number of times you can use the Veteran's loan program because it's a lifetime benefit. There is however entitlement portion of the VA loan- like the guarantee of the loan if default occurs broken down in preliminary and secondary entitlement that would come into play.

That can be a little market dependent on the amounts. It basically means that if you used your initial entitlement amount, once a loan is paid off, you can request to have full entitlement back one time. Now depending on the number of times you've used the program, your specific military service in some cases, and the loan type there are funding fees for the VA loan program; if you're at 0%-4% down, it's under >4%, 5%-9% down, it's a little over 1.5%, and over 10% down under 1.5%.

So if you wanted to sell the investment after time and use this as your primary & house hacking until ‘dream home’ days (or moving out of your in-laws), you could sell and pay off the original loan balance and go this route or pay off original loan amount without selling and keeping it and apply for the one time benefit restoration - which is not the same as entitlement re- installment for active/permanent change of station orders or foreclosed upon properties.

It depends on where you are too if this is worth waiting on as in some areas (higher price point markets) the ‘bonus entitlement'/2Tier for first time users of the program can be higher. Based on your COE (Certificate of Eligibility) you could qualify for basic plus bonus and that could be the ‘dream home' consideration (again, if there's a chance to move from in-laws yet to come) and speaking of for first time VA loan usage.

2.) HAVING SAID ALL OF THAT;

Leaving one unit 'open' as your primary is mortgage fraud and never a good idea. Any rental income coming in would not offset 30 years in prison or $1M in fines. Even if you can get around the underwriting process with your current employment making it seem like you would actually reside there, it's not a good idea.

3.) Alternatives;

If you have a decent job (I assume this means you're a credit worthy borrower), decent cash in reserve, no debt etc. obtaining a (civilian) traditional loan isn't out of the realm of possibilities. Interest rates are still low, I'm assuming you would be able to swing the 20% down to avoid PMI, and qualify for a pretty affordable fixed rate loan product. This would put you in line for cash out refinancing and reinvesting as well.

It does sound like if you're not able or willing to have a fully self financed cash transaction, you would probably qualify for a decent traditional loan product that would keep you on the legal side of things- which is ideal for beginning your REI journey!

My best suggestion would be to speak with some lenders in your area get very clear on the best loan product for your personal financial situation. Not trying to dissuade you on REI by any means, just offering advice to keep you legal = )

Hope that helps!

Chris Pasternak · Answer

You should move out of your in-laws.  You have a job, you apparently qualify for a mortgage, no debt and cash.  The question is should you rent or buy not if you should commit fraud so you can continue to mooch off of your in-laws.

Andrew Freed · Answer

@Stephen Foote - I think you should ask yourself how bad do you want to achieve financial freedom? If you are complacent in your current life then I find it unlikely you will go outside your comfort zone and invest in real estate. To truly be successful in real estate, you need a strong why and a plan on how you will achieve it.

However, if you are ready to put yourself in uncomfortable scenarios and become a better version of yourself everyday then I think the VA househack loan is a great option but only if you plan on living in the property. It will force you to gain landlord experience while living on the property and allow you to leverage your reserves to purchase another property very quickly in the future. So really ask yourself, do I want to achieve financial freedom? Can I put myself in unknown scenarios and grow as an individual on a daily basis? Cause if you live at your parents house and are happy where you are at, I doubt you will be willing to leave your cocoon of comfort with the goal of reaching self actualization.

Nicholas Edwards · Answer

@Demon S Rogers

The funding fee for VA is 2.3% of the loan value if you’re utilizing the program for the first time. If it’s second use on VA I believe it goes to 3.6%. There is no funding fee on a conventional loan. However, if you’re not putting 20% down on a conventional loan you will have to pay PMI for a period of 10 years or when you have at least 20% equity. The PMI rate depends on a variety of factors (how much equity in the property, etc). The simple fact that VA has a funding fee and conventional products don’t does not make it a more expensive loan. You have to factor in down payment and PMI associated with conventional products. Overall, if you have eligibility for a VA loan it’s a great product to use and I would always advise to utilize the product over a conventional product. Hope this helps clear any questions you might have had about either programs!

Stephen Foote · Answer

@Demon S Rogers

Thanks for the clarification on this. This is exactly what I was trying to figure out with this post. I appreciate the help!

Stephen Foote · Answer

@Andrew Freed

Andrew, I’m really glad you incorporated the “why” in your answer. I just want to be clear, and maybe because this was my first post on the forums it came off as disingenuous. Financial freedom is the only thing I think about every day. I could easily go buy a house for my wife and I. And it would be a respectable house, but we choose to live with my in-laws, and we are frugal as a family because this life isn’t about working 55-60 hours a week, and not seeing my family. Or doing the things that might help our children when they grow up. I’m willing to get as uncomfortable as possible to give my children better than what I had. I’m glad you mentioned that point, and I fully realize real estate isn’t a half-in half-out game. Thanks for being honest about your answer.

Doug Spence · Answer

@Stephen Foote If your goal is to build wealth via real estate, then house-hacking with a VA loan is a fantastic way to do it! You technically have to live in one of the units for at least one year, but a VA loan specialist can give you more details and specifics. I would educate yourself on 2-4 unit properties in your area and start making offers! Its going to be very competitive right now because every investor wants to buy 2-4 units right now and most will be paying cash (making your offers using the VA loan less competitive). There's already more and more inventory hitting the market now all over the country, so I would start taking action and do it! "Don't wait to buy real estate - buy real estate and wait"

Stephen Foote · Answer

@Nicholas Edwards

Thanks for the information! Honestly, I didn’t know there was a fee until this forum discussion. If you have any other useful information regarding VA, conventional, FHA, USDA(which I only heard about on the Real Estate Rookies Podcast), etc. That pertains to investing please share, thanks!

Demon S Rogers · Answer

@Nicholas Edwards No that makes perfect sense and what I was tracking, thanks for clarifying! I get where Matt was coming from now.

Demon S Rogers · Answer

@Matt Bishop What makes you say the fees are higher for a VA loan vs the conventional loan? I have never done a conventional loan so I am curious. Also, the VA funding fee can be rolled up into the loan so you don't have to pay it out of pocket, and is lower than the standard funding fee if it's your first-time use.

Should I use my VA home loan to invest while living at home?

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