We are looking to buy our first property within the next 4-6 months. Our plan is to use the VA loan ($80-100k) for our primary residence (looking for a SFH or duplex) and to also use a 30 year conventional loan to buy another property or two to rent. The VA loan gives us the option of putting 0% down on the primary residence and we have $35k to use for the other properties. We would like to buy these properties around the same time frame, but can wait longer on the rental if needed. At the price we're interested in for the rentals, $50-60k, the $35k could go a long way as a down payment.
I know that we would typically have to wait two years (one if the lender agrees) to use the rental income as an income source. It seems to me that using the VA loan first is the right path to take and trying to get the other loan after the VA loan is used. We're paying way too much rent right now and could essentially save at least $500 a month by buying a house in which to live.
We want to leverage all of our resources the best way possible for maximum returns and growth.
Finally, the questions: What would you do if you had the VA loan as a resource as well as $35k to invest in other properties? Is a primary home (VA) AND two rentals a possibility?
Still very new to this so please feel free to poke as many holes in my plans as possible. All opinions and theories are welcome.
I have a similar plan and I'm in a similar situation. Just curious, what city are you looking in? The VA will allow you to buy up to 4 units with that benefit so that's what I'll try to do. Using 0 down means your 100% leveraged, which is great, but also 100% in debt, so going back for a loan before one year might. It be feasible. Other people on here I'm sure will direct us both on that. But if you have at least a duplex with that income coming in I think that helps your ratios to borrow again. Great aggressive plan and great use of your VA benefit.
If they exist in your market, I would look for a duplex you could get with your VA loan. That would kill two birds with one stone, get a primary residence and an investment property.
Depending on the size of you VA benefit, you may be able to buy a place live there a suitable period of time and then buy a new primary residence and use the first place as a rental.
@Chris Parker I think your plan is reasonable. My main recommendation is to buy your primary residence like an investor buys properties - look for undervalued properties. When you use your VA loan, stay below what you CAN borrow and only borrow what you NEED.
As an owner occupant (OO), you have a huge advantage with today's OO preferences for REOs from some sellers. Search homepath.com, hometelosfirst.com, hudhomestore.com,
http://reo.wellsfargo.com/WBREOHome.aspx and other sites that offer OO only buying periods when properties first hit the market. You can buy a property at below market value, but finance 100% of it with your VA loan. While lots of the REOs need repairs that won't make this feasible, I've seen plenty that are financeable. That would be pretty slick to pull off!
Your family is small, so you definitely don't need a McMansion. If you can buy a mid-sized (1200-1600 sq ft) 3BR in a decent area that anyone would be willing to live in, the house will make a good rental when you move out.
The lower you can go with what you borrow for your primary residence, the easier it will be to qualify for your next properties! Best of luck!
@Robert Leonard Thank you so much for the references. It makes me feel better about my plan hearing it from someone else. We were approved for 150k a few months ago, before the extra 35k came into the picture. The property you described is exactly what we're looking for, a 3 BR SFH or duplex in a good neighborhood. For SFH we're looking around the 80k mark. Only considering the higher number of 110-120k for a duplex, but there are lower priced duplexes available.
It's taken some time to get my wife on board (she wants a nice house with all the bells and whistles) but she's starting to see that this is best for our future. Thanks again for the great advice.
@Nicholas Schwab We live in Bellevue, NE right now and that's where we're looking for the primary residence. I would love to find a quad, but I think a duplex might be more in the price range for now.
@Jesse T. That was the idea originally, to use the VA to get our first home, move and rent it out, and buy another to live in. Since we may not live in NE for the long haul I don't think it makes sense to buy the very best, but instead get a nice investment going.
I wanted to chat about the 2 year rule in regards to rental income. If you do a loan through Fannie Mae you can use rental income the next day. No 2 year waiting period is required. If you use Freddie mac then there is a 2 year waiting period. I wrote a blog on this a couple months back.
The bank that told you this has OVERLAYS or the loan officer isn't aware of this rule. It really is imperative that you have a loan officer in your corner that knows the rules and or has a great support team (processing, underwriting and a major decision maker at his/her disposal)
In regards to your plan I think it's great and just remember that a lot of lenders don't go under 50K to lend.
I hope this helps and good luck sir. Have a great day.
@Shaun Weekes Thank you for the reply. I didn't realize there was a difference between Fannie and Freddie with the two year rule. I read your blog and it was very helpful. I will make sure the loan is structured correctly.
On banks, we're about to start looking into pre-approvals from local banks. The area we're looking into is a relatively small town (10,000) and prices are relatively cheap so hopefully we can find someone willing to loan at under 50k. If not, I'm learning tons of ways around the whole bank loan deal. Thanks again for the information.
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