VA Loan Multifamily later Refinancing

[Eric Dufault]

Hello Everyone,

I'm interested in utilizing my VA Loan or FHA Loan towards a mortgage on a multifamily home that I intend to occupy along with tenants. I have enough for 3.5% down payment for the FHA or to cover closing costs for a VA. I would like to live in the home for the minimum amount of time before refinancing and utilizing either loan with little money down again to purchase another, and repeat this process until I have a nice portfolio that is still managable or until I no longer qualify for lending.

I have some questions before embarking on this investment and this seems like an awesome forum to have them answered. If any of my assumptions are incorrect feel free to let me know. I am going to lay out my current plan and then highlight some questions I have.

I'm looking at a duplex to start in the area of $200K to $230K that I could get with essentially nothing down and not buying points through the VA loan. I could buy points and reduce the APR by about .75% but since I plan to refinance this seems like it would be a waste. Or I could put $7K down with a FHA loan and still have the VA loan in my pocket. I intend to live in the residence, then refinance and move onto a similar property. I understand I am going to incur closing costs each time but I am willing to take that up front to accumulate multiple properties.

1- Should I utilize the FHA first time homebuyers loan or the VA for the first property and how long do I legally have to wait to refinance either loan?

2- Are there going to be any legal ramifications to my plan?

3- If I refinance the VA loan does that free up my full entitlement($417k)?

4- If I refinance am I going to have to have a certain amount of equity in the property I'm refinancing in order to get approved?

5- Should I skip paying for points on the VA loan up front? (closing costs would be only $650 up front at 4.5% versus $7300 at 3.75%) and assume I can refinance at a lower rate and then pay the points?

Thanks in advance for your time.

[Aaron Montague]

@Eric Dufault

From an investment point of view, avoid paying out any cash you don't need to. This includes points. The theory being that you can make more money using smart investments rather than paying down ANYTHING early.

1. I would choose the loan that leaves you with the lowest monthly payment. The difficult part about refinancing either of these loans into an investment loan is that you are probably not going to have enough equity (20%) to refi to an investment loan. The good news is that you don't have to live in the dwelling longer than 12 months and you can keep the loan going.
(http://www.fha.com/fha_loan_requirements)(http://benefits.va.gov/homeloans/purchasecashout.asp)

2. Not really. Just don't step outside the bounds set by the agencies. The process can be slow, but both types of loans are hugely beneficial to investors.

3. Check the site

4. Generally you need 20% for a duplex. I believe you can use both of these loans WITHOUT having to refinance either. You just can't use them both in the same 12 month period.

5. No points. Check out https://www.bankofamerica.com/home-loans/mortgage/budgeting-for-home/buying-mortgage-points-lower-rate.go

The banks want your points because they know the true meaning of the phrase "a dollar today is worth more than a dollar tomorrow"

Using the BoA example:

They use the concept of "break-even" from a "the bank wins perspective"
If you can make 10% on your money by investing in real estate.

The $2000 you saved $9000 over 30 years... turns into $39,674.80 over the same 30 years at 10% compounded interest.

The $4000 that saved you $12,444 shows up in 30 years as $79,349.60.

At even rates the first point in the above example is a good buy. $9000 saved vs $8600 earned.

The 2nd point is useless. $12,444 saved vs $16,500 earned. Win for the bank.