I'm trying to wrap my head around the new VA loan rules, am I seeing the whole picture?
I'm currently in a live-in SFR flip that I purchased prior to 2020 with a VA loan. I want to use the VA loan again at my next station to purchase a small multi family, live in it for a year and then purchase a second small multi family to live in and hopefully use the VA again.
My understanding is that I can restore my entitlement once by refinancing to a conventional mortgage which would make me eligible for the 2020 no-cap entitlement.
My question is, if I use my one-time restoration on my SFR, would that mean I can buy a multi family with no cap but then I can't use another VA loan until I dispose of the multi family?
If I use my one-time restoration on my SFR, I can purchase a multi family with no cap, then a second multi family with the second-tier entitlement but I will only have a portion of entitlement available based on the county and how much I used for the first multi family?
Alternatively, I could sell my SFR, recoup all of my holding/rehab costs and make a small profit to avoid having to use my one-time restoration.
Thank you for your time and look forward to connecting!
@Andy Hathaway you nailed it with the 2nd part. Whether you restore with a refi or sell, if you have full entitlement it's no cap, and you can use secondary/bonus entitlement up to the county cap after that.
TYFYS and best of luck!
Thanks @Zack Karp. What if I disposed of the SFR and used my one-time restoration after the first multi family? Would I again have no cap?
@Andy Hathaway yes, once your entitlement is restored, you will have full entitlement again.
@Zack Karp thanks, that helps a lot. Cheers!
Hey Andy, you got it just about right. Here are the rules broken down independently...
a) Your VA Eligibility is like a rechargeable battery. If you use a portion and have some remaining, you can use that remaining amount based on the new county where you are buying. If you use all of it, you can restore it ONCE with a refinance, and an unlimited amount of times if you sell.
b) The only thing that changed in 2020 was that IF YOU HAVE 100% of your eligibility remaining - you have no loan limit cap. So, we've done 2.5 million dollar VA purchases with zero down at 2.5% interest. Crazy. But that is only if you have 100% of your eligibility remaining (even if it has been restored to 100%). If you have eligibility tied up - you are limited to the county loan limit caps. In other words - it reverts back to the old system pre-2020.
So I think fundamentally, yes, you are right about all. I just wanted to lay them out as easily as possible so you can apply those concepts to whatever options you have at your disposal. But fundamentally you are on point, I think.
Good luck man! Good plan!
@Daniel Lehman that’s a great breakdown, thanks!
What about the maximum of two VA loans at one time? Does that also get "recharged" so you could have 3 at once? By using your one time restoration after the first property and then the second-tier entitlement on the third?
I've also read that when purchasing a 3 or 4 unit, you sometimes have to show atleast one year of experience being a landlord. I haven't been able to confirm this on the VA website. Is that a common lender requirement?
Hey my friend.
OK, so calculating remaining eligibility is complicated, but I'll try my best... It's complicated because it CHANGES depending on the county that you are BUYING in. So, bear with me. It's probably better to think about in percentages, I guess?
Let me try to explain.
VA guarantees 25% of your loan. So, let's say you bought a home for 400K. The VA guarantee to the bank (that is tied up) would be 100K. (25% of the 400K).
That does not go down as you pay the loan down - it's just there on your certificate of eligibility.
THEN what you do, is you have to figure out the county loan limit where you are BUYING. Let's say that is in San Diego where we have a county loan limit of 753,250 in 2021.
OK - I am going to break down the steps:
a) FIRST you need to figure out what the MAXIMUM guarantee WOULD be in San Diego. This is 25% of 753,250. That amount is 188,312.
b) Since that is the maximum, and you have 100K already charged, you have to subtract the amount charged from the maximum available. 188,312 minus 100K is 88,312 remaining guaranty.
c) Last, since the guaranty is 25% of the max amount, you have to take 88,312 and DIVIDE it by 25% (or multiply it by 4 obviously) to get your NEW maximum with zero down - 353,250...
d) You can still do a higher price point, but just like the old system, you would have to put 25% down on the overage to ensure a total of 25% guaranty overall.
Make sense? So you can see how that new maximum can change dependent on the loan limit where you are buying. Also, if you are talking about the third property, it's the same system, but you'd subtract the total entitlement already charged. Same math would be with two 200K purchases prior to this example. Keep in mind - there is a minimum loan amount as well. Don't get hung up on "secondary entitlement" - that doesn't necessarily mean second in number - it just means any entitlement remaining after whatever you've used up is used up... It just means remaining entitlement if you have something outstanding. 2nd, 3rd, whatever. Just combine those amounts and do the math accordingly. If you are selling or refinancing one, just take that one out of your math.
Regarding the landlord experience - that's a lender overlay that some have. Plenty dont, and VA doesn't have that guideline - which is why you didn't find it in the VA guidelines...
@Daniel Lehman that makes perfect sense, thank you for that writeup!
The VA backed loan seems like an amazing tool if used with some forethought. I can't wait to put it into action!