All Forum Posts by: John Ford

My current home has $154k balance on my mortgage and would conservatively appraise at $300k.

I'm closing on a new home next month that I'll be moving into and I plan to put my current home on the rental market for $1800/mo.

What I would *like* to do is do a cash-out refi on the (soon-to-be) rental house and either do a flip to raise more cash, or possibly go right into a buy and hold rental deal using the BRRRR method. My ultimate goal is to BRRR into 5 properties over the next two years.

My sticking point is my credit score. My middle score is currently 652. And that'll take a bit of a dip for a while once I close on the new house, I'm sure. Even without rental income, my DTI will be about .25 and once the rental is seasoned, will be about .12. I keep seeing things saying you have to have "excellent" credit in the 700s to do a cash-out refi on a rental. Is that really the case? Will the low DTI help me at all? If not, what other options are available to me to leverage the rental to get cash without selling?
Thanks!

I am closing next month on a second VA loan while keeping my first home financed under a VA loan. First, as stated, the home you're buying (second home) must be your primary residence. So you will have to move into the new home.

There is a minimum loan amount on the second loan of $144k. Chris M did a good job explaining the maximum so I won't go into that.

The minimum score is 620 for your middle score on a tri-merged report. That's the VA minimum. Lenders can still require higher but generally won't be able to go lower than that.

They don't require the first home be covered under a lease unless you want/need to offset the first mortgage on your debt to income ratio. If you make enough to cover both loans and still come in under DTI ratios, you don't have to have a signed lease or cash reserves. If you will need to use projected rental income to lower your DTI, then you will need a signed lease and deposit check. I think you also need 6 months of cash reserves to cover the mortgage on the first house.

There's definitely a lot to it. In addition to research, I recommend finding a loan company that specializes in VA mortgages. I did and they have been awesome and know this crap inside out and were great about educating not only me but also my agent on what I could/couldn't do (so she wasn't wasting our time showing me things I couldn't buy). I'm not at all sure the process would have been as smooth as it has been if I went with a regular bank that occasionally does VA loans.

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.

Thanks for the welcome, everyone! And big thanks for the info and link Ronny.

I'm John Ford and I bought my first home in 2005 in Atlanta's Old Fourth Ward neighborhood. This was pre-Beltline, pre-PCM, pre-H4WP, etc... but all of those projects were either in the infancy of their planning phases or at least rumored to be on the horizon. So I took a chance and bought a 2/1 in the area and moved in. The neighborhood was super rough around the edges but I loved the convenience of the location and it was all the space I needed as a single person with a few animals and the occasional room-mate. My plan was to wait for the above-mentioned projects to happen and drive revitalization and rents to the point that I could rent the place out and have a cash-flowing-property.

Slow-forward 11 years and my plan has finally come to fruition! I just went under contract on a new home and close in May. I'm pretty sure I'll have no problem finding good tenants at the price I want. So, mission accomplished! After this minor success, I've really been bitten by the Real Estate Investing bug. But I'm not planning to wait around 11 more years for my next deal. I've set a goal to have 5 more cash-flowing properties by 2018.

I won't say I have no idea how I'm going to get there but I'm sure there are even better ways of getting there I haven't learned about yet.

I've joined GAREIA and will be attending the monthly meeting next Monday night. Right now I'm reading and learning about the ins and outs of managing a rental property which will probably consume most of my REI brain-space for the next few months. After that, I plan to learn about analyzing buy and hold deals and to start looking, in earnest, for potential deals for rental property #2. I also need to learn about financing deals. I don't have a ton of cash, but I do have about $150k in equity in the first house so that may be a potential source of funds to finance some deals. Of course, if I do end up using that, I'd prefer to learn how to structure my deals so that money doesn't get tied up into a property and I can keep reusing the same capital to bootstrap house after house. I don't even know enough to know whether that's really possible yet, but I suspect it is. It's real estate, anything's possible, right?!

Anyhoo, I look forward to learning from the members of the board and sharing what I can.