Retired military service men have performed a valuable service to their country and the nation as a whole is grateful for their service. Veterans, did you know that some of your military benefits can be used to invest in rental properties? Before we talk about how to use a VA loan to purchase an investment property, let’s discuss some of the VA loan basics.
Help to Buy Your Personal Home
The Department of Veterans Affairs (VA) helps service members, veterans and their eligible spouses to become homeowners. VA Loans are designed to help service men and their families to purchase a home for them to live in. These loans are not written by VA but they do guarantee them which allows lenders to write loans with much more favorable terms. Check out these VA loan terms:
- 100% Financing – no down payment is necessary.
- No private mortgage insurance (PMI).
- Limit on the amount of closing costs you can be charged.
- Competitive interest rates.
- No pre-payment penalties.
- Minimum loan amount $36,000.
- Maximum loan amount $417,000
When you compare these terms to traditional mortgages, can you see why all veterans should finance their home through VA? Traditional mortgages require a minimum of 3.5% down payment (FHA loans). If the down payment is less than 20%, all borrowers are required to pay mortgage insurance which can had hundreds onto the payment each month. VA typically guarantees 25% of the loan value, hence the reason lenders do not require down payments for VA backed loans.
VA Loan Eligibility Requirements
VA Loans are available to all active and retired servicemen who mean one or more of the following conditions:
- Served 90 consecutive days of active service during wartime
- Served 181 days of active service during peacetime
- Served a minimum of 6 years of service in the National Guard or Selected Reserves
- Honorably discharged serviceman with less than 6 years in the National Guard or Reserves due to a service-connected disability.
- Spouse of a service member who has died in the line of duty
- Spouse of a service member wo has died as a result of a service-related disability
- There are some exceptions or additional qualifications that can be researched here
How to Qualify for a VA Loan
There are several requirements to obtain a VA loan. You must have a Certificate of Eligibility. If you do not have one, you can apply using VA Form 26-1880. You will need a copy your Certificate of Release or Discharge from Active Duty (Form DD-214). You will also be required to document your credit, savings and employment information and meet other specific lender requirements. Some lenders do not work with VA loans, so before you start the loan approval process, double check with your lender of choice.
A veteran is allowed one VA loan at a time. There are two tiers of loan entitlements. The first tier is for $36,000 and the second tier of $68,250. Because VA uses this entitlement to guarantee 25% of the loan, with the maximum combination of both entitlements ($104,250) the veteran can borrow up to $417,000 without needing a down payment, if the lender allows. The borrower will have to qualify for the loan amount based on their income and credit rating. Once the loan is paid off, a veteran can obtain another VA loan.
So how can you use a VA loan to invest in a rental property? Watch out for that article next week and learn about the loopholes and fine print.
For more on how you could use a VA loan to become a rental investing landlord, read this article here…
If you’d like to discuss more options for having a professional manage your rental property contact us here and we can provide a cost quote, or virtual rental evaluation to nail down potential income.
