VA loan vs. FHA loan : Pros and Cons?

Question

I'm a new investor looking for my first investment property. What I'm looking to do is purchase a 3-plex or 4-plex to live in one unit and rent out the others. Aside from seller financing, I'm looking into conventional financing.

I'm ex-military and qualify for a VA loan but when talking to a mortgage broker, he was trying to sell me on using a FHA loan instead. I'm curious to know from people who have had experience dealing with both loans and what may be the better option for an owner-occupied loan structure. If location matters due to local laws, I'm looking to live in Pennsylvania or Florida. Thanks in advance for anyone's help and insight!

Scott Lewis · Answer

Mike, I'm a vet and if you have a down payment and good credit, a VA loan is not the best choice. While everyone tells you there is no PMI, there is the funding fee (unless you currently have a disability rating which waives the funding fee, then a VA loan is a good choice) which makes the VA loan expensive.

If you're looking to get into a multiunit property, I recommend finding one that needs some loving, use an FHA 203k loan to purchase and renovate the property, move into one of the units and then refi into a conventional loan.

If you've down the deal right, your renovations should force appreciate the property enough to give you the LTV necessary for conventional financing without PMI. (My wife and I did this on our primary home and I refi'd into a VA loan, but I have a disability rating so no funding fee.)

And you might be eligible to get a refund on the upfront PMI required for the FHA loan.

Mike Hoherchak · Answer

Thank you gentlemen! I appreciate the feedback!

Marques Wood · Answer

VA 100%, no monthly MI, DTI to 55%, 580 fico required, 3.3% funding fee ( unless 1st time use) first time use is 2.20%

FHA, 3.5 % down, 1.75% funding fee ( UFMIP ), DTI to 55% > 620 Fico.

If you are buying a condo and using FHA or VA , needs to be an approved condo.

VA has looser requirements for condo approval.

Both allow for the grossing up of non taxable income to qualify ( like Social Security Income ) VA uses 115% and FHA is some cases will use 125% ( for now )

Franklin Romine · Answer

@Mike  Hoherchak   VA loan is a good product.

Like what Patel is saying.  The person or persons helping you make your decision on the loan product should be subject matter expert.   It took me several years to find the right lenders, insurance people, tax people, etc.  Once you connect the dot with the right people everything clicks in place.

Frank