VA Loan on SFH or Conventional on a Duplex?

Question

Hello All,

I was pleasantly surprised to find out that I got pre-approved for a VA loan. I love this loan because it basically means I don't have to put absolutely zero money down, no down-payment, no PMI and no funding fee. Unfortunately, with market being so hot most sellers aren't accepting the VA loan since it entails high inspection standards and it takes longer to close. That being said, there aren't many houses on the market once non-VA loan houses are filtered out. So this led me to get pre-approved for a conventional loan. I figured if I'm going to get a conventional loan why not get a duplex? So I found one that I liked but it has 1 tenant that is in there until 2022 paying below market rent and then the other tenant's lease expires in November so I would removing them and moving into that side.

Ultimately, I do want to have this as an investment so I would most likely house hack if I got the SFH to get some cashflow or Airbnb the rooms. Or I can put down 5-15% as a downpayment and get the duplex. What's the best way to go? Thoughts, advice?

SFH Pros:

• -Great "free" leverage
• -Less risk
• -Househack (rent out or airbnb rooms)

Cons:

• -Can't completely rent it out because it has to be owner-occupied
• -Slow cashflow/return

Duplex Pros:

• -True investment property
• -Can force appreciation by updating interior

Cons:

• -Tenant recently signed a 2 year lease until mid-2022 that is below market rent
• -Old home, it has good bones but general contracting labor is expensive since they are in high-demand

Thank you in advance!

Jeff Shumway · Answer

Joan as a fellow veteran I would strongly recommend you use your VA loan instead of a conventional loan. Many times agents list a property stating it is "not eligible" for VA financing and are horribly misinformed about the VA loan. For my VA clients, I always call the listing agent to discuss the program and make sure they are educated. This has helped get a lot of offers accepted.

Most real estate agents think the VA property requirements are super strict but this is simply not the case. The VA wants to make sure there are no major issues (i.e. holes in walls/ceilings, termite infestations etc.). Many agents are also concerned the VA appraisal will come in low but personally I have not had this issue. Additionally, the VA is likely going to be making changes to their appraisal requirements to require appraisers to be less stringent in determining the value. Because of this stigma, veterans are losing out on homes so the VA is looking to rework their requirements.

Additionally, if the appraisal comes in low, the VA gives two opportunities to reconsider the value whereas all other loan programs only give one. This is called the Tidewater initiative. We receive notification that it may be coming in low and have 48 hours to submit additional comps for the appraiser to consider. Then if the appraiser does not increase the value, we have another opportunity to submit a reconsideration of value to ask the appraiser to increase the value.

VA appraisers are also required to have the appraisal submitted within about 10 business days. No other loan program requires the appraiser to have the report completed so early. With this, VA loans are actually usually quicker to close than other loan programs. It used to be the case that VA loans took forever to close but this is no longer true.

The VA loan also has much better terms than any other loan product on the market. You do not have to pay the additional mortgage insurance each month and the rates are going to be much better than a conventional loan. Additionally, if rates continue to go down, you have access to the VA Interest Rate Reduction Refinance which allows you to do a streamline appraisal after at least 6 months of on time payments. No appraisal required and most vets don't even pay closing costs out of pocket.

Remember for a conventional owner occupied duplex you will have to do a down payment of 15%. The 5% down program was discontinued earlier this year.

Caroline Gerardo · Answer

Make seller remove tenants before you close. Can the health and safety of this duplex meet VA - water heaters strapped, no leaking plumbing, roof great?  Can you wiggle into closing with lender who can do a VA in 20 days? (Many can) If you could switch to VA it would be better for you but the seller may have an extra cost or two- ask your agent. Markets are not as crazy pro seller as they were six months ago. Thank you for your service

Sunny Alexander · Answer

@Jeff Shumway 💯agree! I have also found that if the veteran goes to their regional center (if appraiser does not come up in value) and pleads their case of hardship and their situation, the VA will increase value.  I am optimistic that changes will be made that will improve the va loans reputation.  Such a great product!

The VA loan is getting attention! https://www.rubio.senate.gov/p...

Sunny Alexander · Answer

@Joan S. wow, great research and outlining pros and cons.  I have represented a lot of veterans using the VA loan and it is a great product.  Unfortunately, there are misconceptions about the product.  As long as the property meets minimum property standards (safety, wood rot, roof) you should be good to go.  The VA loan can close just as quick as a conventional too.  If possible, I would recommend using it to free up your cash.  Good luck!!!!!!! Excited for you.

Achim Berras · Answer

Good Evening Joan,

You clearly have done your research! In my opinion, the duplex seems to be the most viable option moving forward long term as a buy and hold investment. Since construction costs seem to be high in your area you can focus on one side of the duplex and handle the other side in due time. Trust the process as there is a lot to learn from this potential experience. I can only imagine the numbers will work after you upgrade and rent out both sides of the duplex. I would also recommend using BP (Biggerpockets) calculator to compare the SFH and Duplex to see if the numbers work out for you. I'm not sure if you plan on self managing but maybe networking with some property managers in your area can be of service. Good luck!

VA Loan on SFH or Conventional on a Duplex?

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