BRRRing on a VA Loan

10 Replies

Hello, i have never bought a home but i have been looking in Raeford, NC. I was stationed there when i was in the army and now I want to buy my first rental property there within the next 60 days preferrably two within the same neighborhood. I currently live in Washington due to my husband being stationed here, but will be getting out in July of next year. We are applying for a loan and have a question.. 

Is it possible to use the VA Loan, say we will be living in it but we can't because we live in WA, do $0 down, use our money to BRRR and then refinance with another loan company so that the VA is paid off and we no longer need to live in the house? Or is there is also a period of time where you also can't refinance either? Has anyone done this before?

Hey Stephanie, congrats on taking the first step toward getting your first investment property. I would strongly advise against saying you are going to live in the property with your VA when you actually have no intention of living there. A lot of newer investors don't realize this actually constitutes mortgage fraud which is a felony.

When you are moving to a new primary residence, the lender will also do all sorts of employment checks where they use a 3rd party company to contact your employer to verify you are either able to work remote or will be physically working in that location. 

The VA home loan is an amazing product- I'm a veteran myself and own my own home on a VA loan. If you're looking to use it to start building wealth, I would suggest either house hacking or purchasing a home and living in it while your force appreciation. (Or better yet, find a value add multi-unit property and force appreciation!) The VA loan has some really cool benefits when it comes to refinancing- you can go all the way up to 100% loan to value on the cash out refinance. Most loan products only allow you to go up to 80% loan to value. Meaning, on a VA cash out refinance you can take out 100% of the value of the property whereas on a conventional loan you could only take out a loan for 80% of the value of the property. The VA loan allows you to access a full 20% more of your equity. If you decide you don't want to take cash out and rates continue to stay low, you can always utilize the VA Interest Rate Reduction Refinance Loan (IRRRL). It's a streamline refinance that does not require an appraisal and you can usually wrap all the closing costs into the loan. It also requires you to reduce the interest rate by at least .5%.

Feel free to reach out if you have any questions on using your VA loan. I'm happy to discuss.

@Stephanie Caruthers   There are a couple of BIG problems with that plan.

1. If you tell the lender that you will occupy the property and don't, you have committed mortgage fraud, which is a felony.  You'll have to sign an affidavit of occupancy as part of the loan package.

2. VA loans require a very strict inspection. There is a huge list of items that will cause a loan to be rejected - cracked window, uneven sidewalk, loose hand rails, even a small amount of peeling paint, etc.

That means that you won't be able to buy a property that needs repairs with a VA loan. Your goal should be one that needs updating, but not repair.  VA doesn't care if you have avocado appliances, faded wallpaper and shag carpeting.  If you can find a home that hasn't been updated since the 1960s, you can buy it and live in it while you update.

Originally posted by @Kris L. :

@Charlie MacPherson

Are those new? Because I have definitely gotten a VA loan on a property that had a cracked window, though it was 10 years ago.

I got licensed 8 years ago and those rules were in force until I left the profession a year ago.  I can't speak to when these rules came into force.

It could be that the inspector didn't see the window or maybe even chose to ignore it for his own reasons.  Some, but not all of the criteria are explained here: https://www.valoans.com/eligib... and here: https://www.militaryvaloan.com...

@Stephanie Caruthers a couple points to break down here, since I am a veteran and do a lot of VA loans.

Yes, you have to promise to live there for 12 months, and you're supposed to occupy within 60 days of closing. BUT VA loans have quite a bit of leniency in the the 60-days-to-occupy requirement. It can be up to 12 months, so ask your loan officer if your situation applies.

If you want to BRRRR then you'll have to keep in mind 2 things: appraisal turn times, and appraisal requirements.

For other loan types, the lender will use an Appraisal Management Company to order appraisals. When the AMC send out the bids, Appraisers accept the order and we get feedback that the report is expected to be published by x date. So if it's a long way's out, we know to extend the contract to accommodate a late appraisal. Or not. But at least we know. On VA loans, the VA acts as the AMC and they don't tell lenders when the appraisal will be published. Very frustrating. This makes the close date a potential moving target, because nobody knows when the report will be published until it's published. So if it takes a long time, sorry, but you might close late solely because you're waiting on the appraisal. Or not. Who knows.

Second, the VA (and FHA) have much more strict property requirements. Basically, the house has to be livable and in halfway good condition, so if you're specifically looking for a distressed property to do a major rehab, it definitely won't fly with VA.

As far as refinancing goes, you don't need to use another loan company unless you're planning to commit occupancy fraud. But if you just want to refi out of a VA loan into a conventional loan to free up your entitlement to purchase your next house with VA, then by all means, go for it. I'm literally doing that myself right now for my current residence that will eventually become a rental. But the same applies - if you refi into a primary residence loan, whether that's va, FHA, or conventional, then you have to promise to live there for 12 months.

If you choose a Conventional non-owner occupied (aka investment) loan though, you're free to leave whenever you want. It's a higher rate and cost, but it doesn't tie you down.

@Sam Fickel No I want to learn the right way to do things. I never want to be involved in any illegal activity it was just a thought that popped up in my head. There is plenty of other ways to get the investment property that i can find, just need to do the research. My husband and I were just turned down for a 180k loan due to him getting out of the army in the next year, soo that is where we are at in our process.