First Time Buyer. VA Loan vs FHA?

Question

Hello BP Members,

My name is Khai, I recently joined BP in search for helpful tips and advice for real estate investing. I proudly served 8 years in the US Army, and now a veteran. So, my story is that I'm currently house-hunting for my first home, mainly 2-4 unit multifamily properties. I was pre-approved for a 200k mortgage loan and I found a 2-family property for 119k. The condition of the house is not so great, but the location is great, nice peaceful and safe neighborhood, not far from the highway, and local markets.

Although it needs work inside, such as a new kitchen, new heating system, and possibly a new roof. I feel like this is a great opportunity, and with some renovating, I believe it will increase its value tremendously. Also, renting out the other unit will definitely help out. But, I'm having a tough time figuring out what steps I should take to move in the right direction.

I've been looking into two loans, FHA and VA Loans. With a FHA Loan, I understand there's a requirement of 3.5% down-payment. VA Loans is 0% down-payment, which is very nice. I am interested in FHA because it offers the 203K Rehab Loan, while VA Loans requires me to find a home, ready-to-move in.

I guess my question is that, should I take a chance with the FHA Loan and renovate the property to my liking, that will increase its value over time or save money purchasing a home ready-to-move in, and wait for another opportunity house to pop up?

Thanks in advance for your time. Any tips, advice, recommendations, or suggestions are much appreciated.

Tim G. · Answer

Hi Khai,

I can't tell you what to buy, I can tell you I was in a near exact situation (No VA loans though) and I purchased my four plex with an FHA 203K rehab loan.

I looked at tons of deals, this one was just right and I knew to pull the trigger. Its littered with problems but all ones I felt I could solve. Needs repairs, but nothing structural.

If you can look into the 203K "streamlined" I would highly consider it, the non streamlined has a lot more moving parts and requires the assistance of an outside consultant to monitor the project.

You have to decide if you are comfortable taking on a project, if not wait for a clean fixed up deal.

I will gain 30k in equity once fixed according to the appraisal, I really don't care because it is a long term hold. I cared more about what it would rent for and how quick I could get the turn around done.

Good luck! Don't over think it, if you like the deal and the numbers work I say go for it. There will always be someone to tell you why it is a bad idea. If they aren't kicking ass in REI ignore them, if they are kicking ass... pay attention to what they said.

KHAI HUYNH · Answer

Thanks Tim and Bill the great tips! I am leaning towards the FHA loan more and I also been thinking about saving the VA for a future purchase. :)

Bill Gulley · Answer

I assume there is no real cash available, otherwise I'd say a bank loan with rehab money and have them do a VA to take out thier initial purcahse/construction loan, whic still might be possible at a small bank or credit union, and if you get a skilled contractor to knock out the work.

Otherwise, take the FHA if you can find a lender to do them. I'd save my VA for the next purchase as you move up and turn that property into a rental later on! Good luck.. :)