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Updated about 9 years ago on . Most recent reply
Using my Va Loan to my advantage!!
Hello everyone,
I am new to this forum but since I recently joined, I have been scouring this site trying to obtain all the information that I possibly can. Throughout my search, (as far as I know) I have yet to find an answer to the question that I am going to pose. Here is my current situation:
Military veteran who used VA Loan to buy a condo for $155K. I currently want to begin real estate investing but not quite sure how to do it. I have about $8K that I could commit to using for investing into a multi-family unit along with the equity that is already in my home which isn't a lot. I have a relative that is willing to rent out my current condo in order for me to be eligible to move into a multi-family as an owner occupant.
I have found a few multi-family units (3 to 4-plex) that range from $50K to $155K that are in C- to B- range areas. My plan is to rent my house out to my relative so that I can keep the property and show that I have a steady tenant, refinance my VA Loan into either a Conventional loan or FHA loan and then use my VA loan again to obtain another property.
I don't want to be too long-winded on my first post but I greatly encourage any type of feedback or suggestions to how I should approach this. Thank you all for your time!
-Lael
Most Popular Reply
I applaud your efforts to find a way to acquire assets, and thank you for your service. I started with owner-occupied VA loans too, but the rules were a bit looser back then. But personally, I would NEVER rent to friends or family. What happens if your relative loses a job, gets sick, or simply can't pay the rent? Are you willing to evict them, or even have them served? Think about how would that play out at Thanksgiving dinner. It's a business, and you have to be willing/able to do what needs to be done at times.
Lael, sounds like a good plan but what is the question, you should be able to utilize the remainder of your entitlement on another loan since the cap is $417K. Have you talked to your bank you currently have the loan with? What did they say?
Thanks for the response Eric! One question I have is are there any rules about relatives moving into your current house as a rental? I see conflicting reports where some say they can while others say that they can't due to the underwriter thinking that you may still live at the house and using your VA loan to acquire a rental property.
I will definitely talk to my bank to see what they say about me possibly refinancing or what my options may be.
Have you ever done this process before or refinanced a VA loan into another loan?
I applaud your efforts to find a way to acquire assets, and thank you for your service. I started with owner-occupied VA loans too, but the rules were a bit looser back then. But personally, I would NEVER rent to friends or family. What happens if your relative loses a job, gets sick, or simply can't pay the rent? Are you willing to evict them, or even have them served? Think about how would that play out at Thanksgiving dinner. It's a business, and you have to be willing/able to do what needs to be done at times.
@Jerry Bredesen I appreciate your point and service to our country as well. One question for you would be; did you refinance out of your Va loan or did you just maximize the entitlement? Also, if you did refinance, what type of refinance approach did you use? I look forward to hearing from you and welcome any advice that you have.
The worst tenant I ever had was a friend of the family. He stopped paying rent, but eviction wasn't so easy to do. I finally kicked him out and then I even came over and helped him move. Despite all that he still acted as if he was the victim.
@Lael Johnson - Sorry, but it's been forever since I even thought about a VA loan. I'm sure the rules today are totally different. Back when I was using them you could get 0% down with no points and no PMI - and the loan was assumable. As I recall, you could only have one at a time and it had to be owner-occupied. We would buy a place, move in and gradually improve it over a few years, then either sell to someone who wanted to assume the mortgage, or refinance with a conventional loan. Once that loan was paid off or in someone else's name, you were eligible to get another VA with the same sweet terms.
I would recommend Bradon Turner's book on investing in RE with Low & No Money Down. http://get.biggerpockets.com/nomoneydown/
There are some great strategies for leveraging investor's money to invest, and there's a ton of good info. If you don't have a lot of equity or cash, it might be a good route.
@Lael Johnson, looks like I'm a little late to the party, but I'll try to add some insight and ask questions... As @Eric Dufault mentioned, the cap for a VA guaranty is 417k, meaning you would have 417-155=262k entitlement left. There are no hard and fast rules about who can live in your rental from the VA, the bank may be a different story. You do not have to refi out of the VA, you can keep both as VA loans. The VA prefers that if you are adding another loan on top of another VA guaranteed loan, that you are "moving up", i.e. moving into a bigger house, etc. However, if you exceed the Basic Entitlement of 144k, (which in this case you have done), they don't really care about that as much. If you refi out of the VA loan, then you would get your original 155k entitlement back.
Now, just so you know, I am not a lender or a professional by any means, but I have used my VA loan once (bought and sold), and am currently under contract using a VA. My lender is a prior VA underwriter, so I've picked her brain a LOT. I also learned a lot from @Samantha Reeves. I highly encourage you to contact Samantha as she will be able to answer a lot of your VA questions as well.
I like your strategy, it makes a lot of sense. Good luck!!
Thank you @Matthew Coleman for that great information and recommendation! I have read that the VA will only let you use the other portion of your entitlement only if you are moving away i.e. orders or something along those lines. I would be moving into a 3-4 unit place as opposed to a bigger house. More than likely my next property will be under the remaining guaranty, so it will depend on my income and other factors to see if the VA will let me have two loans at one time? Thanks for any more insight that you provide.
They will definitely let you have multiple loans at one time, the only limit is the 417k total entitlement (and that may be higher depending on location), and you Could go more than that, but then you'd have to bring money to the table.
Another thing, they don't look at size, just amount of loan. So you could be currently living in a SFH with a 100k note (for example), and then move into a duplex or triplex that has half the square footage (per unit), but all they'd look at is the total loan amount. As long as you move up or can justify the new loan, you're fine.
Hope this helps and good luck.
Interesting read, I am thinking of using a VA loan as well. @Matthew Coleman would you happen to know the housing requirements needed in order for the VA to accept it?
I've bought at least Seven VA foreclosures where the VA gave me an investor non-owner occupied VA mortgage on the properties. At one time I had six VA mortgages concurrently.
I've bought other VA foreclosures also without mortgages and just bought one this year.
I bought my first home using a VA loan and I close on my second VA loan next month and will convert my first home to a rental. Both homes are in the same city.
For my second loan, I sought out and found a lender that specializes in VA loans. I ended up going with Veteran's United Home Loans and they've been absolutely great. They definitely know the ins and outs of all aspects of VA loans forwards and backwards.
Since you mentioned 50-155K range, I will point out that the minimum loan amount for a "second tier entitlement" VA loan is currently $144k. So in my case, I had to find a property more than $144k and less than my remaining entitlement ($221k). That was an easy window to hit in my area for a nice SFH but I did have to pass on a lot of $125k-ish houses that would have been pretty sweet.
Also, it is possible to use rental income to offset the mortgage on the first property for DTI purposes. However, it's a bit of a pain if the property hasn't already been rented for a year. You need a signed lease with deposit and all that jazz, which is kind of awkward to arrange if you're still living in the place and not moving out for over a month. I didn't want to go through all that so I am carrying both loans on my DTI for underwriting purposes on the second loan. That did limit the amount I could get on the second loan, but I was fine with that since I didn't want to bring a ton of cash to the table (You need to bring 25% down on any overage of the loan amount not covered by the VA guarantee). But either way is an option (with or without using rental income) as long as your income supports it.
Good luck and thanks for your service.
@Lael Johnson @Eric Dufault @Matthew Coleman @Charles W.
Want to clear up some misconceptions regarding VA loans that have been stated in this discussion.
* You can use and re-use your VA benefit at any time.
* You can only have 1 VA loan at any given time. The ONLY time you get an exception for an additional VA (assuming you have entitlement left over) is if you have to relocated due to a valid reason (i.e. you can't move 10 miles away and get an additional VA loan).
* VA entitlement goes up with the # of units and is different in different counties.
* To be able to use rental income for your new VA loan, you need to have 2 yrs of documented (i.e. on tax return) landlord experience. There are some exceptions.
What @David Krulac is stating is very different (foreclosure purchase directly from VA), and does not fall within the guidelines.
Hope this helps clarify things.
@Upen Patel I think your clarification on having multiple VA loans out at once is inaccurate. It is possible to have more than one VA loan out at once even if there isn't a PCS or other relocation. It's possible to have 2 VA loans in the same city. It's more of a prudent underwritng issue. For example, if a buyer purchases a home in X city and then 15 months later wants to purchase a second home 2 miles away also using their VA loan, whether this works or not depends on whether or not it makes sense. Why are they purchasing the second home so close to the first - is it an upgrade, a different school district, what did they realize in the past 15 months that makes this move make sense? Obviously each lender may have their own lender overlays that also come into play in this type of decision that could impact the situation, but to my knowledge there isn't a VA guideline that strictly prohibits having 2 VA loans out at once with the only exception being a relocation.
Thank you, @Samantha Reeves, I agree. There's actually a guy I work with right now that currently has 2 VA loans out. The VA doesn't have a restriction, whereas the lender may.
@Charles W., the VA uses what they call MPR's, Minimum Property Requirements, as their minimum requirements. If you search around on their website there's a .pdf of them. I have it saved on my work computer. Basically, the home has to be move-in ready. I have also been told that it can vary by appraiser. Hope that helps.
Here's a link to the Lenders Handbook @Matthew Coleman is referencing - MPRs are covered chapter 12. Just keep in mind the appraiser is to use their judgment and they are given a lot of deference to determine if the home meets the MPRs and whether repairs are required.
http://www.benefits.va.gov/warms/pam26_7.asp
@Samantha Reeves I agree with what you are saying. It falls under the "relocating due to valid reason". I did not go into the list of valid reasons. And yes, it is about prudent underwriting.