All you military guys out there: VA Loan thoughts?

10 Replies

Team,
Any thoughts on renting your home financed with a VA loan? I think my mortgage payments are going to be too high to establish a positive cash flow. What are y'alls thoughts on refinancing with equity before I leave? Or would It be better to just sell and roll the equity into our next home?

@Corbin Dallas

I have purchased two homes with the VA Loan so far. In my opinion, I would look at refinancing to see what the return would be once you rent out the home. It also depends on the market your home is in. If you are in a market that is expected to appreciate, you may also want to keep it for that reason. I recently sold our first property because the market was not going to appreciate compared to the market we are currently stationed in. I am now solely focused on one market versus purchasing a home at every duty station. 

Depending on your VA eligibility, you can purchase another residential property when you move. 

Sincerely, 

@Corbin Dallas Are there any changes/improvements you could make to the home to increase rents? What if you rented it out as a short term rental? (airbnb, vrbo, etc). 

Selling is usually a last resort solution in my opinion. The transactional costs in real estate are high, so you need to be sure your money and VA entitlement will yield you a better return if you sell and buy at another location. For example, if you were to sell the current home and purchase a 2-4 unit property and house hack, that would probably be a better use of your entitlement.

Do you have the capital to refinance your current home using a conventional mortgage?

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I am currently in the process of looking into this as well and was surprised to find out the following:

From what I have been told recently, in order to reset your VA eligibility, you need to pay off the original mortgage. Even if you refinance the VA Mortgage into a more conventional loan (again, based on what I was just told), it still doesn't reset your eligibility.

On the other hand, if you don't need/want the VA benefits for your next home, then that may be fine for you. I had assumed that if I refinanced my loan (I now have greater than 20% of the houses value covered by equity), that I could reset my VA eligibility.

If that is wrong, I would love to be corrected

@Mike Allen as far as what you said about refinancing it and not resetting your eligibility, that's not entirely correct. You are allowed to purchase a home with a VA home loan, and you can refinance it out into a different type of a mortgage such as a conventional mortgage. You can have your VA eligibility we reinstated as a one time thing, so it's just as it says, you can do it once.

I actually just did this. We purchased our home outside of Boise with a VA home loan and 0% down back in September, 2019. Because of the insane appreciation in this market, We have way more than 20% equity in the house. We refinanced it about a month and a half ago into a conventional 30 year mortgage with the same interest rate. There's a form, I can't remember what the VA form number is, but you fill out this form and submit it to the VA and they can do a one time reinstatement.

I have a post on a different thread here on the forums where I go over how the VA entitlement works. However if your plan is to use your VA home loan in each market to buy a home, rent it out, and then use your VA home loan again in a different market and repeat the process, unfortunately it won't work that well as you will quickly run out of entitlement. We did what we did, because we're not gonna stay here forever, and the next time that we use the VA home loan it will be for a primary residence that we intend to keep and not turn into a rental.

If you got any questions, let me know.

@Corbin Dallas A strategy that a couple of old-timers that I was stationed with in the Air Force used was that they would buy a home with their VA home loan allowing them to get in with 0% down, and typically, regardless of branch, you're at a duty station for at least 2 years. When their time is up at the duty station, they would sell it thereby allowing the VA loan to be reinstated, and then roll the proceeds into a new home at their next duty station. Since 2 years typically has passed since they bought the home, there's no taxes owed on that, and it's almost like a 1031 exchange, but with more time to identify the The next property. They would continue doing this until they reached the time that they wanted to retire. They would then sell that home, and roll all the equity they had been banking over the years into a small cash flowing multi-family property such as a small apartment complex. they would then be able to reap the cash flow and still have their VA home loan available to allow them to buy a personal residence with zero down.

Originally posted by @Jason Bohling :

@Mike Allen as far as what you said about refinancing it and not resetting your eligibility, that's not entirely correct. You are allowed to purchase a home with a VA home loan, and you can refinance it out into a different type of a mortgage such as a conventional mortgage. You can have your VA eligibility we reinstated as a one time thing, so it's just as it says, you can do it once.

If you got any questions, let me know.

Jason, this was incredibly helpful, thank you! I was just told by two different lenders that this was impossible, but now that I know what I am looking for, I suspect that it will be a lot easier to find.

@Mike Allen I’m glad I could help.

The form is VA Form 26-1880, Request for a Certificate of Eligibility. In box 11a instructions it says specifically "Item 11A. One-Time Restoration. If you have paid off your VA loan, but still own the home purchased with that loan, you may apply for a one-time only restoration of your entitlement in order to purchase another home that will be your primary residence. Once you have used your one-time restoration, you must sell all homes before any other entitlement can be restored."

The refinance into the conventional loan would be a ‘pay-off' of the VA loan for these purposes.

@Corbin Dallas - I purchased my first townhome with a VA loan, reduced my expenses with roommates, and kept that townhouse as rental property when I upgraded to my next home. That townhouse has cash-flowed well since making it a rental, even though the underlying loan was a 0% VA loan