If you’re in the military and considering home ownership (or maybe you already own a home and want to make another investment), then there are a few different ways you can take advantage of a VA Loan. Below, I’ve included a couple of ways you can use your VA loan to invest, a close-up look at a real-life scenario, a couple of helpful charts, tips on how to find a VA lender, and information directly from the VA website.
How can you use your VA loan for an investment property?
- Use your VA loan to purchase your first home, live in it for one year, and then purchase another home. After purchasing your first home, you must have the home serve as your primary residence for one year. After one year, you will be able to purchase another home within specific guidelines as outlined by the VA with any remaining entitlement. Traditionally, it is for a reason that results from necessity, such as moving out of the area, upsizing to a bigger home, etc. It could also be for something minor, but you should consult your lender or the VA directly for specifics.
- If you can afford it, buy a property with multiple units and rent out the extra units. As you can see in the chart above, if you can afford it and have enough entitlement you can buy up to 4 units as long as they are all combined onto one property (including a duplex, triplex, and fourplex). This type of purchase will also require you to live in the residence for at least one year, but the benefit is that you can collect rent money from renters occupying your extra units. If you’re careful and run your numbers right, you can make a profit on your VA loan.
The table below includes the new 2017 VA loan limits on single-family 1-unit dwellings, duplexes, triplexes, and fourplexes in both Pierce County and King County. As you can see, there are some opportunities for investments here:
A Real Life Example
One of my past clients bought a home for $190,000, and soon after they got married. My client’s wife, sister-in-law, and the sister-in-law’s boyfriend were all going to move in together, so they needed to upsize their home. At the time, their county limit was $417,000. Two years later, they ended up purchasing a larger home for $245,000 which was plenty with their eligibility (find specifics on how this is calculated below, but your lender can always help explain this more thoroughly!). This particular client rented out his first home for $1,500. The mortgage was $1,080, so each month he profited $420. Not only did he have positive cash flow, but each month his mortgage was getting paid, in turn building the veteran positive equity.
If you did this over a few properties, you could retire with homes paid off all while getting rent money on the top! This is a decent retirement on top of other retirement plans. (For more information on VA loans and VA loan investments, contact me or your lender.)
More Information on VA Loans From the VA Website:
As with all things, inflation in our economy affects those in the military just as it does with civilians. This is in part why the VA puts out new loan limits based on certain counties across the U.S.
Below, I’ve also include some highlights regarding VA loans directly from the VA website:
- “VA does not set a cap on how much you can borrow to finance your home. However, there are limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend you. The loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a down payment. These loan limits vary by county, since the value of a house depends in part on its location.”
- “The basic entitlement available to each eligible Veteran is $36,000. Lenders will generally loan up to 4 times a Veteran’s available entitlement without a down payment, provided the Veteran is income and credit qualified and the property appraises for the asking price.”
- “Veterans who had a VA loan before may still have “remaining entitlement” to use for another VA loan. Most lenders require that a combination of the guaranty entitlement and any cash down payment must equal at least 25 percent of the reasonable value or sales price of the property, whichever is less. Thus, for example, $23,500 remaining entitlement would probably meet a lender’s minimum guaranty requirement for a no-down payment loan to buy a property valued at and selling for $94,000. You could also combine a down payment with the remaining entitlement for a larger loan amount.”
What You Need to Know About VA Lenders
I’ve mentioned a couple times that it’s important to reach out to a lender for additional information, but that can be a challenge in and of itself. Who do you work with? It’s very, very important for you to work with a lender who TRULY knows the VA. Don’t get sucked into using a lender just because they offer a cash incentive or claim to be a military lender. You’ll usually pay the price for that in higher rates, not working with just one person, and being confused all the time (they’ll probably be confused, too, and end up wasting time by doing things like asking for loan documentation more than once, for example). Oftentimes, these uninformed types of lenders are also not up-to-speed on local laws, taxes, and processes in different area, making it a challenge to close on time.
Personally, for me (on both of my purchase and refinances), for my family, and for the majority of my clients, we end up using local lenders like Mike Villano of www.VeteransNationalLendingGroup.com. He is my go-to guy for VA questions and problem solving, in case you need a recommendation!
Cyrus Bonnet | Realtor cyrusbonnet(at)windermere(dotted)com
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