VA loan or not? Pros and cons?
Member since 2020 · 35 posts · 5 votes
VA loan or not? Pros and cons?
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Zack KarpPro Member
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes@Steven Macdonald frankly, it sounds like you are talking to the wrong lender(s). Let me categorically address everything I see here in this thread.
1. When you buy any primary residence, whether it's VA, FHA, Conventional, or USDA, you are signing a Mortgage at closing that says that you will occupy the property for 1 year. After that, you can do whatever you want. You can rent it out and you do NOT have to refinance in order to do that.
2. You CAN have multiple VA loans at a time. This is called using Bonus Entitlement. It depends on the location of the property that you are purchasing, your existing entitlement, and the availability of additional entitlement. If your LO doesn't understand this, or cannot communicate this clearly after hearing your scenario...RUN.
3. You CAN purchase a 2-4 unit property using VA financing with 0% down, and possibly without having to refinance out of your existing VA loan. See #2 above.
4. If you want/need to be able to use your entire VA entitlement, because the new property purchase price and/or loan amount is too high causing too large a down payment using your bonus entitlement, that's when you will need to refinance your existing VA loan into a Conventional loan, so that your entitlement can be restored.
5. The VA loan has a funding fee, unless you are disabled. It gets rolled into the loan, not out of pocket unless you want to. There is no monthly PMI. And the rates are lower than Conventional. This makes the VA loan the most powerful loan out there, 99% of the time the VA loan should be chosen over Conventional or FHA. It is a huge benefit and should be used as such. If your LO is telling you their VA rate is higher than Conventional...RUN.
6. If you are not disabled, your subsequent funding fee is higher than the initial purchase funding fee. But at the end of the day, who cares? It's financed into the loan. If this is a long term buy and hold property, that fee is negligible compared to the profits you will make from rental income and tenants paying your mortgage.
7. You can do a VA IRRRL (streamline refi) on a primary or investment property with an existing VA loan. If your LO is telling you that you cannot do an IRRRL on an investment property...RUN.
I think you catch the drift. There are too many lenders and LO's who are simply call centers and order takers. Your LO may have been working at Jiffy Lube 6 months ago. Make sure you are working with a rockstar who knows VA lending and investors. And I love BP, but sometimes you get wrong/bad advice from non-lenders (or even from lenders smh) because it's an open forum and anyone can say anything and people believe it. I am a Military Mortgage BootCamp Instructor. I teach VA lending. There is a big difference between someone like me and the call center LO at Veterans United or USAA or Navy Fed. VU is a scam and has no affiliation to the VA whatsoever. Navy Fed and USAA are fantastic at banking and insurance, but frankly they suck at mortgages. Just being real. Be sure to align yourself with the right team...LO, Realtor, CPA, Attorney, etc...it can make a huge impact on your success or failure.
Hope that helps! TYFYS and best of luck.
30 Replies
- 6yJoseph CacciapagliaBusiness MemberLender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
I've done exactly this strategy. You don't have to refi out of the VA loan just because you move out and rent it. The only real downside to a VA loan is the VA Funding Fee. It's a small price to pay for a 0% down mortgage though.
- Member since 2020 · 35 posts · 5 votes6y
Thanks Joseph! So you never ran into any problems renting your property out? The mortgage company I'm possibly refinancing with is telling me I need to refi my loan to a conventional then turn it into a investment property. That I'm not able to use my VA IRRL as a rental? But it seems on here many people have turned there VA properties into rentals without having to refi out.
- Real Estate Agent · Spokane, WA & North Idaho · Member since 2017 · 135 posts · 170 votes6y
VA loans are awesome. You can buy up to 4 units and are required to use the property as a primary residence for 1 year. After that you can live wherever you want.
It's a great tool for new and experienced investors alike, you're never going to find a better COC return than with a VA loan where the only cash you need to put down is the VA funding fee (some lenders will let you role this into the loan so you pay nothing at closing, that's what we did).
Good luck
- Member since 2020 · 35 posts · 5 votes6y
Thanks Phil! Yeah I agree it has awesome advantages! My current situation is I've lived in my currently property for 3 years with the VA loan. (Thinking I have to replace it with a conventional loan to use it as a rental.) So in the process of refinancing it. But that also starts my loan off to another 30years with a couple fees in the process. Basically restarting my whole process over again, since I've mainly paid a majority of it to interest.
I was thinking about freeing up my VA loan and use it on my next property as the next loan. But hate the fact that I have to start a whole new loan over again. any recommendations on if I should keep moving forward with the refi? Or should I just save and make my next loan be an FHA? Thanks
- Rental Property Investor · Las Cruces, NM · Member since 2017 · 65 posts · 38 votes6y
You don't have to refi out to rent out your VA home. I have 2 as rentals right now. There are 2 downsides or possible ones. The funding fee is an added expense. But if you have a disability rating from the VA, even 10% that fee is waived. Also, they don't always have the best interest rates. I have used several conventional loans because the VA rate was much higher.
- Member since 2020 · 35 posts · 5 votes6y
Ok thanks Aaron. Nice! You you were able to use your VA loan a couple times after freeing it up? Or were you able to use it twice?
- Boston, MA · Member since 2020 · 3 posts · 2 votes6y
Can I use the VA loan on a BRRR property? I heard that the it has to be under a certain condition for the loan to get approved. I live in MA and I wanna start my real estate investing with a single family under the $300K mark. Many of those houses are livable, but require work.
- Lender · Frisco, TX · Member since 2019 · 546 posts · 270 votes6y
@Steven Macdonald It's never a bad idea to use your VA loan to purchase your next property. No mortgage insurance on the VA loan will usually make the payment lower than an FHA or a conventional loan at anything over 80 LTV. Since it sounds like it's a subsequent use, you'll likely have higher funding fee than you would have for your first use. Despite the raised funding fee, this still often will give you a lower monthly payment then FHA will.
If you are currently in a VA loan, I would recommend doing an interest rate reduction loan into a conventional to restore your entitlement. Then you can get into your next property for zero down. It can be up to four units, but the VA can be a little stringent about using the anticipated income from a multiunit property to qualify if you don't have any property management experience prior to this.
It really depends what your needs and goals are for the property. Obviously, you'll want to cash flow and it's much easier to cash flow if you have a smaller loan amount. A smaller loan amount means you have a lower mortgage to pay. However if your main concern is getting into a multi with zero down, then VA is a great option. You can also always put money down for a VA loan if you wish to lower your loan amount, thus increasing monthly cash flow.
- Member since 2020 · 35 posts · 5 votes6y
Thank you Elsie and Ron for the reply. Ron did you run into any issues when trying to purchase your next home with a VA loan at all?
- Rental Property Investor · Las Cruces, NM · Member since 2017 · 65 posts · 38 votes6y
Originally posted by @Steven Macdonald:
Ok thanks Aaron. Nice! You you were able to use your VA loan a couple times after freeing it up? Or were you able to use it twice?
I used it once on 2 properties. You have a max $ amount as a benefit. Lets pretend its $500K. You could buy 1 home at $300K and then later buy another home for the $200K thats left from your benefit. And I haven't done this but im told once the home is paid off, you can get a 1 time reset of your VA loan and start all over.
- New to Real Estate · Los Angeles · Member since 2020 · 5 posts · 1 vote6y
your all good bro, after your year is up you can move out and it no longer has to be your primary residence. it may be 2 years in some states i believe. so check that out!! no refinancing needed.
- 6yZack KarpPro MemberLender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
@Steven Macdonald frankly, it sounds like you are talking to the wrong lender(s). Let me categorically address everything I see here in this thread.
1. When you buy any primary residence, whether it's VA, FHA, Conventional, or USDA, you are signing a Mortgage at closing that says that you will occupy the property for 1 year. After that, you can do whatever you want. You can rent it out and you do NOT have to refinance in order to do that.
2. You CAN have multiple VA loans at a time. This is called using Bonus Entitlement. It depends on the location of the property that you are purchasing, your existing entitlement, and the availability of additional entitlement. If your LO doesn't understand this, or cannot communicate this clearly after hearing your scenario...RUN.
3. You CAN purchase a 2-4 unit property using VA financing with 0% down, and possibly without having to refinance out of your existing VA loan. See #2 above.
4. If you want/need to be able to use your entire VA entitlement, because the new property purchase price and/or loan amount is too high causing too large a down payment using your bonus entitlement, that's when you will need to refinance your existing VA loan into a Conventional loan, so that your entitlement can be restored.
5. The VA loan has a funding fee, unless you are disabled. It gets rolled into the loan, not out of pocket unless you want to. There is no monthly PMI. And the rates are lower than Conventional. This makes the VA loan the most powerful loan out there, 99% of the time the VA loan should be chosen over Conventional or FHA. It is a huge benefit and should be used as such. If your LO is telling you their VA rate is higher than Conventional...RUN.
6. If you are not disabled, your subsequent funding fee is higher than the initial purchase funding fee. But at the end of the day, who cares? It's financed into the loan. If this is a long term buy and hold property, that fee is negligible compared to the profits you will make from rental income and tenants paying your mortgage.
7. You can do a VA IRRRL (streamline refi) on a primary or investment property with an existing VA loan. If your LO is telling you that you cannot do an IRRRL on an investment property...RUN.
I think you catch the drift. There are too many lenders and LO's who are simply call centers and order takers. Your LO may have been working at Jiffy Lube 6 months ago. Make sure you are working with a rockstar who knows VA lending and investors. And I love BP, but sometimes you get wrong/bad advice from non-lenders (or even from lenders smh) because it's an open forum and anyone can say anything and people believe it. I am a Military Mortgage BootCamp Instructor. I teach VA lending. There is a big difference between someone like me and the call center LO at Veterans United or USAA or Navy Fed. VU is a scam and has no affiliation to the VA whatsoever. Navy Fed and USAA are fantastic at banking and insurance, but frankly they suck at mortgages. Just being real. Be sure to align yourself with the right team...LO, Realtor, CPA, Attorney, etc...it can make a huge impact on your success or failure.
Hope that helps! TYFYS and best of luck.
- Realtor · Pigeon Forge, TN · Member since 2018 · 230 posts · 111 votes6y
@Steven Macdonald
My Mom is currently cash out refinancing primary into a va! Be prepared to wait and wait and wait some more. She started the process pre covid and may fingers crossed close end of June. For the fees and prices it has been worth it but hard to hold all your finances in limbo for months.
- Rental Property Investor · Los Angeles, CA · Member since 2016 · 4 posts · 2 votes6y
@Steven Macdonald Like many others have added, I too did this on my first property. One thing to consider too is there have been recent changes to the way the VA loan works. For example the loan used to have a ceiling of I believe 500k. As if 2020 for new loans they have removed the cap and instead you simply get 1 entitlement with the limit only decided by what you qualify for. After a year you can move out and rent the property without refinancing, but won't have your entitlement until you refinance, pay off your loan, or sell the property.
- San Diego, CA · Member since 2019 · 23 posts · 4 votes6y
@Steven Macdonald you can definitely move out and use it as a rental. My wife and I purchased our residence with my VA loan and we are house hacking it by switching between renting out our 2 spare rooms on leases and on air bnb. We intend to move out in the near future and purchase another house with an FHA loan.
- San Diego, CA · Member since 2019 · 23 posts · 4 votes6y
@Michel Barias yes you can, but the house has to be your personal residence for a year prior to your move out
- Real Estate Agent · Spokane, WA & North Idaho · Member since 2017 · 135 posts · 170 votes6y
Originally posted by @Steven Macdonald:
Thanks Phil! Yeah I agree it has awesome advantages! My current situation is I've lived in my currently property for 3 years with the VA loan. (Thinking I have to replace it with a conventional loan to use it as a rental.) So in the process of refinancing it. But that also starts my loan off to another 30years with a couple fees in the process. Basically restarting my whole process over again, since I've mainly paid a majority of it to interest.
I was thinking about freeing up my VA loan and use it on my next property as the next loan. But hate the fact that I have to start a whole new loan over again. any recommendations on if I should keep moving forward with the refi? Or should I just save and make my next loan be an FHA? Thanks
If you can refi at a good rate conventional and free up your VA loan then go for it. There are plenty of low/no fee refinance lenders out there so don't just listen to one lender!
- Member since 2020 · 35 posts · 5 votes6y
Wow all of you have been super helpful and cleared a lot of un answered questioned up. I couldn't be more pleased with all the responses that came in! Thanks Elise and Zach for your very detailed responses. That makes extremely a lot more sense. From the sounds over everyone's responses I will have to do an entitlement check(just to make sure I cant use the va loan twice)on my va loan now and most likely more forward to refi to a conventional and use my VA has my next loan for the multi. Thanks everyone!
- New to Real Estate · Winter Haven, FL · Member since 2018 · 5 posts · 1 vote6y
@Steven Macdonald I used it once and still in current prop ready to get into the next using my VA home loan again. I have used up about 200k of that benefit. For Florida, I have a little over 300k left that I can use. Here is the kicker they told me that not a lot of people know (please correct me if I am wrong).
So if I want a multi family (2-4), and let's say it cost 400k, I can still get it and go over my VA limit. The way it work is that you put down 25% of the difference. For me. That would be 25k I would have to put down. If the house was 500k (200k over the overall limit), I would have to put down 50k.
Is it worth it to do that? not sure. Would have to be really good numbers. I'm still learning and looking in Orlando right now.
- 6yTyler GibsonBusiness MemberReal Estate Agent · Orlando, FL · Member since 2017 · 1k+ posts · 2k+ votes
Originally posted by @Justin M Henderson:
@Steven Macdonald I used it once and still in current prop ready to get into the next using my VA home loan again. I have used up about 200k of that benefit. For Florida, I have a little over 300k left that I can use. Here is the kicker they told me that not a lot of people know (please correct me if I am wrong).
So if I want a multi family (2-4), and let's say it cost 400k, I can still get it and go over my VA limit. The way it work is that you put down 25% of the difference. For me. That would be 25k I would have to put down. If the house was 500k (200k over the overall limit), I would have to put down 50k.
Is it worth it to do that? not sure. Would have to be really good numbers. I'm still learning and looking in Orlando right now.
Jim I like the Idea but if you had to put 50k down that is just like getting a 10% conventional which if you are going to owner occupy you could do. The question then is if the interest rate is better with one product over the other. I'm a Realtor here in Orlando and the Small Multi-family market is competitive and expensive. But if you are going to house hack and in it for the long haul it still makes sense.
- New to Real Estate · Winter Haven, FL · Member since 2018 · 5 posts · 1 vote6y
Originally posted by @Tyler Gibson:
Originally posted by @Justin M Henderson:
Jim I like the Idea but if you had to put 50k down that is just like getting a 10% conventional which if you are going to owner occupy you could do. The question then is if the interest rate is better with one product over the other. I'm a Realtor here in Orlando and the Small Multi-family market is competitive and expensive. But if you are going to house hack and in it for the long haul it still makes sense.
In most cases I don't see the number working beyond fighting for a great rate, as you say. Where it does come in handy is if i only need to go a little over. Say it is only 30k over, in that case you would need only 7.5k. That would puts the percentage down at only 2.27 (below FHA). Not bad to get a great rate and if it is over your benefit limit. Really depends on the numbers. But, who doesn't like extra information and options. Most would just assume they cannot go over VA limit, I did. Crunching the numbers is key.
- Boston, MA · Member since 2020 · 3 posts · 2 votes6y
@Jacob Powers thank you. Yeah, I did a little digging around here and saw that. Can't wait to get my first deal.
- AZ · Member since 2018 · 78 posts · 40 votes6y
@Zack Karp
This is awesome info. Thank you for posting it.
I don’t mean to hijack the OP’s posts but I feel this is relevant.
I closed on a VA IRRRL back in February 2020 on our primary residence that we have been living in for 4.5 years now.
My question is do I need to live in the house for another year before I can move out even though I’ve lived at the same place for 4.5 years now?
Thanks!
- 6yZack KarpPro MemberLender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
@Kao Saeteurn if you closed as a primary residence, then yes you signed a new mortgage in February starting a new clock that you intend to occupy for 1 year.
You could have opted to tell the lender that you did not plan to occupy for 1 year, in which case they could have done the IRRRL as an investment property, which is absolutely allowed for an IRRRL. Then you could have moved out at any time.
Again, that comes down to the LO you were working with, they should have asked the right questions to make sure that you weren't stuck there for another year if that's what your intention was. Unless your intention just recently changed after the refi, in which case there is nothing you could have done to change this.
Now, do people move out before that 1 year is up? Yep, all the time.
Is that considered mortgage fraud? Yep.
Are there consequences? Potentially, Yep. The lender has the right to do anything from calling the note due, levy fines, and/or in some extreme cases for blatant defrauders, they can prosecute.
Hope that helps, TYFYS and best of luck!
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