Financing Options with VA and FHA

6 Replies

Need some ideas and creative thinking. I am looking to buy a house in southern Mississippi and am in the military. Plan was to use 2nd tier VA loan entitlement, but the minimum amount for that is $144,000. The asking price for the property is $135,000 and it is possible to make purchase price $140k and with VA funding fee rolled into the mortgage, it'll be over $144k.

However, I don't want to overpay for the property and submitted an offer of $125k with seller paying all closing costs up to $5k. This leaves me under the $144k requirement for a VA loan. Here are a couple of strategies we have considered thus far:

--USDA loan may be an option, but I'm not sure.  My TAXABLE income (military base pay + rental income from another property) is less than the income requirement of $72k for USDA loans in the area.  But the GROSS income (base pay + BAH + BAS + rental income) is over that amount - so I'm not sure if I'm actually eligible or not.

--Have the seller do some repairs/upgrades (new paint, counter tops, new fence, carpet, etc) and then make the purchase price $140k with seller paying closing costs - therefore the seller will recoup that money after closing and we don't have to do the upgrades and such ourselves.  I think of this as almost a fix/flip scenario, but could delay closing.

--If the seller accepts the offer of $125k and seller pays closing costs, then possibly an FHA loan? The idea is to buy the house without actually paying anything out of pocket, but if it's necessary then so be it.

And before everyone just says go ahead and make it $140k purchase price and seller pays closing and be done with it, the numbers will work that way for a rental, however I don't feel that I need to pay that much for this house.  The seller had a contract a week or two ago for in the $120's and the financing fell through - so they are motivated to sell and will accept less than the asking price.

Any thoughts/comments/ideas are greatly appreciated, thanks!

The problem with offering the 140k is it sounds like it won’t appraise for that value. I think using the VA loan is probably not a good route then. Have you thought about grabbing a cheap house at a higher price point?

Sounds like you have thought this through well. You're stuck here with VA financing unless you go with the seller doing some upgrades and get that price up to 144K. Otherwise FHA or Conventional are your options if your income is over the USDA limit.

FWIW, I would go FHA or Conv and save your VA benefit for the next one. Sounds like this is not the last one... :)

Best of luck, and TYFYS!

@Jared Viernes my wife and I will actually be living here for the next 2.5 years or so and we had toyed with the idea of buying a new construction but the main reason we didn’t go with what you’re saying is that a lot of the inventory here is either relatively new or just nasty looking and/or in a flood zone. Most of our decision was based off location (schools, shopping, flood zones) and feasibility of renting it when we leave and there wasn’t much inventory that met that criteria. This house should appraise for right around asking price but I think if we go in and treat it like a long term flip basically, value may increase to 150k or 160k. The numbers for renting work as it stands now though so I’m not just banking on property values.

And Zack, I was leaning towards the FHA with the lower down payment. All depends on what that monthly payment will be across the different options and going with what makes the numbers work. The biggest problem with not doing VA or USDA is the down payment being little to none and therefore having PMI or equivalent to deal with.

Also as for saving the VA, I’ve used it once already and plan on getting out after this tour so this is a chance to use up the last of the entitlements and get a second house without having to refinance the first one into a conventional to free up the loan

@Wesley Frazier

Your entitlement doesn't go away once you get out.  Lifetime benefit my man.  Both the basic entitlement and bonus entitlement.  You can have them restored and use them again and again.

Zack, I was referring to the 2nd tier entitlement that you need to be on orders to use

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