The Benefits Of Va Loans For An Investment Property
If other options are available, why would an investor consider using a VA loan for an investment property? There are many reasons, but most notably is the fact that you can utilize these loans with 0% down. While youll still need money for closing costs and fees, you can buy an investment property with literally no down payment. Not everyone will qualify, but it is an attractive option.
With a VA loan, you can also avoid paying mortgage insurance, which is often charged on many other mortgage options. While the cost may be counter-balanced with other fees, this can bring significant savings to your overall investment portfolio.
Its possible to use multiple VA loans at one time. So if you purchase a property, live in it for a certain time, and convert it to a full investment, you can then use another VA loan for your next property either a home you will live in for decades or another potential investment property. This is another significant advantage to using VA loans for investment purchases.
What Va Home Loans Cannot Be Used For
In this context, even if the borrower lives on the property secured by the VA mortgage as the primary residence, the property cannot be used to operate an Airbnb, hotel, bed-and-breakfast, or other businesses that have a rental occupancy for 30 days or fewer.
The property MUST be used as a residence, even if there are other commercial interests involved. The residential nature of the home must always come first with a VA home loan. This will play an important part in how the VA loan rules and your lenders requirements will be used to interpret your intended use of the home, especially if you want to rent to others.
Can I Rent Out My House If I Have A Va Loan
Yes, but with some contingencies. The Department of Veterans Affairs intends for the VA home loan program to get service members and Veterans into primary residences rather than purchase income properties. But once youve met the owner-occupancy rule, then you may be able to refinance and rent the property when you move into a new home.
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Va Loan Types Eligible Properties You Can Buy With A Va Loan
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VA mortgages are available to eligible veterans, who can use them to finance up to 100% of the purchase price of an eligible property, up to VA approved loan limits.
Eligible veterans can also finance the VA Funding Fee as part of the loan.
Because of that arrangement, the veteran can purchase a home with no down payment. The zero down payment loan has largely been eliminated since the Financial Meltdown, for all loan types except VA mortgages.
But o qualify for that financing, the property that you are purchasing must be deemed eligible according to VA property guidelines. Though there are certain types of properties that the VA considers to be ineligible, the vast majority of properties will qualify.
Buying Rental Property With A Va Loan
A low-cost home loan backed by the U.S. Department of Veterans Affairs also called a VA home loan is more than just a way for veterans to afford homes. The loans can also be used to help veterans buy rental homes that they can make some extra money from as landlords.
In VA loan rule provisions that arent widely known, veterans, active-duty personnel and their surviving spouses can buy investment homes with no money down and low mortgage rates. The main requirement is that they must live in the home as a landlord.
Its a great way for them to subsidize their housing, says Elysia Stobbe, branch manager at NFM Lending in Jacksonville, Fla., who has written a book about how to get a mortgage.
While not common, more VA loan applicants are buying rental property than the general population. Nine percent of U.S. homeowners have investment homes, while 16 percent of active duty members of the military do, according to a 2016 study by the National Association of Realtors.
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Can I Use A Va Loan To Purchase A New Primary Residence
The answer here is yes, but the home you purchase must be the home that you plan to use as your primary residence.
Additionally, a VA buyer could plan to rent their departing residence and use up to 100% of the rental income to qualify for the new purchase, even with no prior rental experience.
Using Bonus Entitlement After A Foreclosure Or Short Sale
Remember the bonus entitlement we just spoke about for owning multiple homes with VA loans at once? Well, VA also allows bonus entitlement to be used for buying another home after a VA foreclosure or short sale.
When using bonus entitlement after a foreclosure or short sale, the minimum loan amount is $144,000. Once, this level is surpassed a no money down purchase is possible up to certain purchase prices. The amount of money that you can borrow depends on the amount of remaining eligibility and the buyers qualification. Qualifications include debt to income ratio, , and more.
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Can I Use A Va Loan To Buy A Second Home
The answer depends on what you mean by a second home. This question could mean any of the following:
- Once I have used a VA loan, can I use it again to buy a new primary residence?
- Is it possible to use my VA loan eligibility after a VA foreclosure or short sale?
- Can I buy a vacation home or rental property with a VA loan?
Compare Top Va Purchase Lenders
Take the guesswork out of finding a VA Loan provider. Veterans United Home Loans created this site to educate and empower military homebuyers. Regardless of what lender you pick, it’s always a good idea to compare and know your options.
- NMLS # Loading Reviews
- ranks No. 1 in Customer Ratings for VA purchase lenders, according to ratings and reviews collected by TrustPilot.
- In , closed 0 VA Purchase Loans, which was 9% of all VA Purchase Loans closed nationwide last year.
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What Documentation Does The Va Require To Show Evidence Of My Rental Income Earnings
VA loan rental income documentation requirements depend on the rental history of the property.
If you are using income from a separate property you already own, you will need to provide income tax returns from the past two years, including Schedule E.
If you are using income from the subject property or from another property you have owned for less than two years, you will need to provide a signed lease. And if you dont have a signed lease yet, you will need a rental appraisal completed by a licensed appraiser.
While qualifying for a VA loan with rental income is possible, the process can be confusing. Make sure youre working with a lender who has experience using rental income for VA loans.
As an OVM customer, you get access to a dedicated loan officer who can help you navigate the process. Contact OVM Financial at 757-296-2148 for a free consultation. You can even start your loan application online at ovmfinancial.com/QuickStart.
Have Questions about VA Loans?
Contact our dedicated team online or via email to get personalized answers to your questions.
So How Many Times Can You Use A Va Loan
Eligible veterans and military service members are able to use there VA home loan benefits over and over again. There is no limit on how many times you can use your VA loan benefit. This is a benefit you have earned for serving our country, and once you have earned it, it is a life long benefit you can use over and over again. You can restore your entitlement as often as you need as long as you sell the previous property and pay the prior loan in full. In some cases you can even keep your first home and buy a second primary residence if you are required to move for a job or a PCS situation. Everyones circumstances are unique, so give one of our VA home loan specialists a call at 855-956-4040 to find out more. We are here to serve you!
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Can You Use A Va Loan For Investment Property
VA loans aren’t intended for investment properties, but there are ways around this rule.
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VA loans come with some serious benefits. Backed by the Department of Veterans Affairs, this handy mortgage program has no minimum, requires zero down payment, and offers 100% financing. It’s really one of the best loan options out there — at least for homebuyers.
But what about a real estate investor? Can you use a VA loan for investment property or multi-unit homes? Let’s dig in and see.
Estimate Cash Flow Accurately
When you apply for a rental property loan the lender will want to see an existing cash flow statement or a pro forma income statement if the property currently isnt rented to a tenant. When you calculate potential cash flow be sure to take these income and expense items into account:
- Gross potential rental income
- Vacancy allowance
- Leasing and property management fees
- Operating expenses
- HOA fees
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Types Of Rental Property Loans And The Pros/cons Of Each
There are a lot of similarities between a rental property loan and a mortgage on your primary residence, and also some big differences as well.
Lenders follow a similar loan application process: Youll need to provide documentation of your income, assets, and debt, and the lender will check your credit score.
However, lenders view a rental property loan as having a higher level of risk because the property is not owner-occupied. They know from experience that some investors may simply walk away from the loan if times are tough and the property doesnt generate positive cash flow.
Types Of Rental Property Loans And How Each Works
Using other peoples money by getting a loan on a rental property can be a good way to increase potential returns as long as you conservatively balance risk with reward.
In this article, well look at the options for getting a rental property loan and discuss how to analyze cash flow and property value to help you make the best investment decision.
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What Happens When Service Members Get Transferred
The majority of lenders that fund VA loans require military members to occupy the residence for at least a year.
Transfers happen all the time in military service. If you take out a VA loan and are occupying the residence to meet loan requirements and then are transferred, you can either sell the property or have another party assume your loan. However, the latter only applies if your lender participates in a VA loan assumption program. And while VA loans are only for qualifying service members and veterans, loan assumptions are freely assumable — the assuming party only has to meet financial and credit qualifications.
Using Rental Income To Qualify For A Va Loan
Many buyers come to the table thinking they will be able to use their future rental income to qualify for their VA home loan.
For example, if your mortgage payment is $3000 and you will make $1500 a month in rent, youd only need to qualify for a $1500 a month mortgage. The problem is, you may have a hard time assuring your lender that this income is stable and steady enough to count on.
Some lenders may count future rent as an effective income if you can prove your history as a landlord and have at least two years of experience under your belt.
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Can I Get A Va Loan If Ive Been Denied Other Financing
Yes, you can get a VA loan even if youve been denied for other financing.
Because the VA loan offers such flexible guidelines, you might be able to qualify even if youve been turned down for another type of home loan, including the FHA loan, a Conventional 97 mortgage, or some other type of credit.
What The Va Says About Farm Loans
Some potential VA borrowers reading up to this point might feel frustratedthese buyers dont want to know about suburban homes, condo units, or VA mobile home loans, they want to know what it takes to purchase a farm residence using a VA mortgage.
This is something VA loan rules specifically address and there are some misconceptions about VA farm loans you should know about before exploring your options.
Like all other VA mortgage loan program options, the VA farm residence loan is something intended to help qualified borrowers use to purchase a residence. In other words, you may purchase a farm home using a VA mortgage but the loan will ONLY cover the residential value of the property.
The VA loan cannot be used to purchase farm equipment, outbuildings, etc. When the VA appraisal for such loans is conducted, the appraised value ONLY reflects the residential nature of the home. No VA funds can be used in this context for the purchase or operation of a farm business.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News
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How Much Mortgage Can I Qualify For
Lenders have apre-qualification processthat takes your finances into account to determine how much they are willing to lend you. Once the lender has completed a preliminary review, they generally provide a pre-qualification letter that states how much mortgage you qualify for. Get pre-qualified by a lender toconfirm your affordability.
Does Zoning Count
Some borrowers worry about zoning issues, especially when buying mixed-use property. The VA loan rulebook does not concern itself with zoning issuesthis is left up to the local authority and the standards of your lender. If your home meets all the other VA minimum standards but has a complicated zoning issue, it will be up to the borrower and lender to work out what is permissible in that municipality based on local laws or ordinances. VA loan rules do not address local zoning issues.
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Can I Buy A Multi
Yes but with some stipulations.
The U.S. Department of Veterans Affairs intends the VA home loan program to give qualifying homebuyers the chance to afford a home to live in. With your loan, you can purchase a property that has up to four units. To meet the VA occupancy requirements, youre going to have to make one of the units your permanent residence. This is fairly standard with other mortgage types, such as FHA loans.
You dont have to live in the building the entire time you own it, though. Once you pay off your VA loan, youll now own a fourplex that can generate rental income.
How It Actually Works
As of this writing, there is a 3,700 square foot duplex in Las Vegas, NV with a sale price of $315,000. The second unit provides $1,400 a month in rental income.
Assume that you put zero down and finance $315,000 plus a $6,772 VA Funding Fee. Your total monthly payment, including taxes and homeowners insurance, would be about $2,000 with a 4.5 percent mortgage rate.
If you dont count the rental income towards your mortgage qualification and have no other debts, youd need qualifying income of $4,878 a month to get loan approval. Thats because the VA allows up to a 41 percent debt-to-income ratio, which is your monthly debt payment divided by your monthly gross income.
If you are able to use the rental income to qualify, you get a different picture:
- The lender would offset the mortgage payment by 75 percent of the rental income
- 75 percent of $1,400 is $1,050
- Subtracting $1,050 from your $2,000 mortgage payment gets you a payment of $950
With no additional debts, your income required to qualify drops to $2,317 a month.
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Eligibility For Va Loans
To be eligible for a VA loan, you or your spouse must be an active or former military servicemember. That said, in order to be considered a veteran or military member, there are requirements of how long you served.
To qualify for a VA loan, you must meet one of the following criteria:
- You have served 181 days of active service during peacetime, OR
- You have served 90 consecutive days of active duty service during wartime, OR
- You have 6 years of service in the National Guard or Reserves, OR
- You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
Before your loan goes through underwriting, you must provide your lender with a Certificate of Eligibility . Your lender may help you apply for one, or you can apply for one through the VAs eBenefits portal.
Most require a 15-30% down payment. But they also offer much faster loan closing times, with a streamlined loan application process. They also dont require income documentation to calculate income ratios.