No property tax / Assumable debt for multi-family. How would you qualify/structure?

Question

Hello Biggerpockets,

I would like to hear your perspectives on this.

I do not pay property tax in Chicago and I found that I can purchase a triplex/quadplex in Chicago or the suburbs for up to 800k. After this write-off, I would be saving 30% on PITI, approximately 8-10k annually. By coupling this with a VA assumable, I can essentially takeover an existing mortgage on a property at around 2.5-3.5% interest rather than the 7.5-8% curent rates.

Essentially: For 800k of debt service today everyone else would pay $6800$ a month, for me on a 3% loan it would be $3650.

The problem:

The way VA underwriting works, I have trouble qualifying for the loan. I do not have "bad" debt, but already have 5 houses. 1 of the houses is paid off, but doesn't have 2 years of tax returns until next year. The other one I bought and renovated this year, I currently live in it. The VA said that they cannot count the income for the paid-off property and the primary residence (once rented) until there is 2 years of tax returns. So, I am hitting a roadblock.

Should I just partner with someone? Should I try to wrap a loan? I don't yet have an acquisitions funnel for off-market assumable debt.

Zack Karp · Answer

@Charles Granja it's actually the opposite. The VA underwriting guidelines are generally looser than Conventional and FHA.

And the lender you are talking to, who supposedly spoke to the VA, is dead wrong. Or they have overlays.

You can ABSOLUTELY use rental income from the house you are vacating without 2 years tax returns, because the VA guidelines allow you to offset the PITI with prospective rental income. You cannot use any surplus rental income over the PITI added to your qualifying income, but the amount of rental income up to the PITI can be used to wash it to $0.

The paid off house you can also use the rental income on the most recent tax return, as long as you have a 2 year history with other properties. Now, it will be prorated and may not show the full rental income, but it will be something.

The other thing to be aware of is that you will need a hefty amount of reserves. You will need 3 months PITI reserves for each of your properties. In addition to 6 months reserves on the subject property you are buying.

Now, if you are assuming a mortgage, then unfortunately you have to deal with that lender and their guidelines, which could be overlays to the actual VA guidelines. Either that, or they aren't trying hard enough to make it work.

If you are buying with a regular sale and not an assumption, be sure to work with someone who actually knows what you can and cannot do with VA lending, and is helping you to maximize your buying power.

TYFYS and best of luck!

Doug Spence · Answer

@Jonathan Klemm Thanks for the tag! @Charles Granja I can imagine its very difficult to find owners with assumable VA loans for 3-4 unit properties that want that type of arrangement as opposed to just selling and freeing up their entitlement, but I'm sure its possible!

Jonathan Klemm · Answer

Hey @Charles Granja - You should connect with my partner @Edgar Barbosa or my good friend @Doug Spence. They are both familiar with the VA loan program and I used it.

Buying a 3/4 with a VA loan will be amazing so you should figure out how to make it work. Can you partner with another vet? Not sure if that's an option.

Andrew Postell · Answer

@Charles Granja yeah, that's doesn't makes sense to me. Maybe it was that servicing lender who told you those things....but as mentioned above, it's up to the servicer to allow you to assume the existing loan. Some servicers will care about certain things and some won't. But it's the servicing company's call.

Charles Granja · Answer

Hello Andrew,

I mean Veteran Affairs. They back the mortgage, so they have a part to play in the transaction with the lender. They have very strict underwriting guidelines compared to FHA and conventional.

I had a property last year pass through other guidelines, but because of tax returns fail at VA underwriting guidelines. They essentially say they won't provide a guarantee for the 20% down payment amount.

Andrew Postell · Answer

@Charles Granja when you say the "VA"...do you mean the lender who services the current mortgage? That's who you are speaking to, right?

No property tax / Assumable debt for multi-family. How would you qualify/structure?

No property tax / Assumable debt for multi-family. How would you qualify/structure?

Most Popular Reply

6 Replies