If you’re a veteran, investing in real estate using a VA loan can be a smart idea. The loan program offers:
- No required down payment
- No private mortgage insurance (PMI)
- Low interest rates due to the partial guarantee of the loan by the government
It’s important to understand that the VA does not originate or service loans. Banks and other lending institutions do that. However, the VA guarantees a portion of the loans which reduces lender risk.
The VA’s military real estate investing program is an attractive program. But as an investor, you need to understand its limitations before you buy. And we give you three tips on how to work within the program.
The VA’s military real estate investing program is an attractive program. But as an investor, you need to understand its limitations before you buy. And we give you three tips on how to work within the program.
Military Real Estate Investing Limitations
It’s important to first understand that the VA loan program was created to support military home ownership, not investing. If you’re using the program as an investor, you’ll need to be aware of these limitations:
Occupancy Requirements--Because the VA promotes homeownership, it is mandated that the veteran live in the VA loan purchased property for a required length of time. Specifics can be adjusted on a case-by-case basis. But typically, the borrower must move into the home within 60 days of closing and must live at the residence for at least one year.
“Safe, Sound, Sanitary” Appraisal—Because the VA loan program promotes homeownership, it has a stringent appraisal standard, more so than most other loan products. That means the home must be habitable and not in need of significant improvements or maintenance.
That’s why veteran investors seeking to fix and flip a property will not use a VA loan; the property won’t qualify.
Using Future Rental Income as Qualifying Income--While VA lenders each have different requirements, most won’t consider future rental income to determine your debt-to-income (DTI) ratio for loan qualifying purposes unless you have a minimum two-year landlord track record proven with tax returns or use a property management company.
To that end, leases need to be signed prior to any consideration of future rental income.
Occupancy Requirements--Because the VA promotes homeownership, it is mandated that the veteran live in the VA loan purchased property for a required length of time. Specifics can be adjusted on a case-by-case basis. But typically, the borrower must move into the home within 60 days of closing and must live at the residence for at least one year.
“Safe, Sound, Sanitary” Appraisal—Because the VA loan program promotes homeownership, it has a stringent appraisal standard, more so than most other loan products. That means the home must be habitable and not in need of significant improvements or maintenance.
That’s why veteran investors seeking to fix and flip a property will not use a VA loan; the property won’t qualify.
Using Future Rental Income as Qualifying Income--While VA lenders each have different requirements, most won’t consider future rental income to determine your debt-to-income (DTI) ratio for loan qualifying purposes unless you have a minimum two-year landlord track record proven with tax returns or use a property management company.
To that end, leases need to be signed prior to any consideration of future rental income.
3 VA Loan Tips for Military Investing
Now that you know the limitations of VA loan investing, here are three ways to successfully work within the VA loan framework.
1-House Hacking
The first investment strategy is known as house hacking. Basically, it means having tenants that either partially or fully pay your mortgage and bills. There are two options under this strategy.
Single Family Home with Roommates--Purchase a single family home and rent out part of the home with renters sharing common areas of the house. Granted, this option may be best for young, single vets, but still, it is a good option!
“Plex” Approach--Want more privacy than the first option offers? Consider purchasing a duplex, triplex, or quadplex. As long as you live in one of the units, this is a good approach to investing.
As with the single family home investment option, this plex option allows you to ensure that your renters’ monthly payments cover your mortgage, or possibly more!
2-Modified Flipping
The second investment strategy is called modified flipping. With this approach, the military investor buys a home that is slightly under market value. It may just need esthetic updating.
Live in the home for the required length of time, making improvements along the way. Then sell the property for a profit.
With modified flipping, you just need to file paperwork with the Department of Veteran Affairs to have your VA loan entitlement reinstated. This approach to investing can be used again and again!
3-Doubling Up
Most veterans don’t know that a VA loan can be used twice—at the same time. You can! You just can’t use all of your entitlement benefits.
For example, the VA guarantees 25% of the loan amount up to $127,600. So, if you buy a home for $150,000, $37,500 is the entitlement guaranteed by the VA. You still have $90,100 in VA entitlements you can use.
Here’s how you can use this to your advantage:
Buy a home with a VA loan using less than the amount for your total entitlement. Live in the home for one year. Then purchase a second home using a second VA loan moving into the second home and converting the first home into a rental property.
For military real estate investing, any of these strategies are excellent as a method for homeownership and calculated investing!
Ready to buy a home or investment property? Turn to the pros at Lilly Title & Settlement. We’re a woman-owned company that offers title insurance and real estate closing settlements. Learn more about us here.
1-House Hacking
The first investment strategy is known as house hacking. Basically, it means having tenants that either partially or fully pay your mortgage and bills. There are two options under this strategy.
Single Family Home with Roommates--Purchase a single family home and rent out part of the home with renters sharing common areas of the house. Granted, this option may be best for young, single vets, but still, it is a good option!
“Plex” Approach--Want more privacy than the first option offers? Consider purchasing a duplex, triplex, or quadplex. As long as you live in one of the units, this is a good approach to investing.
As with the single family home investment option, this plex option allows you to ensure that your renters’ monthly payments cover your mortgage, or possibly more!
2-Modified Flipping
The second investment strategy is called modified flipping. With this approach, the military investor buys a home that is slightly under market value. It may just need esthetic updating.
Live in the home for the required length of time, making improvements along the way. Then sell the property for a profit.
With modified flipping, you just need to file paperwork with the Department of Veteran Affairs to have your VA loan entitlement reinstated. This approach to investing can be used again and again!
3-Doubling Up
Most veterans don’t know that a VA loan can be used twice—at the same time. You can! You just can’t use all of your entitlement benefits.
For example, the VA guarantees 25% of the loan amount up to $127,600. So, if you buy a home for $150,000, $37,500 is the entitlement guaranteed by the VA. You still have $90,100 in VA entitlements you can use.
Here’s how you can use this to your advantage:
Buy a home with a VA loan using less than the amount for your total entitlement. Live in the home for one year. Then purchase a second home using a second VA loan moving into the second home and converting the first home into a rental property.
For military real estate investing, any of these strategies are excellent as a method for homeownership and calculated investing!
Ready to buy a home or investment property? Turn to the pros at Lilly Title & Settlement. We’re a woman-owned company that offers title insurance and real estate closing settlements. Learn more about us here.
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