My husband (veteran) and I purchased a home in Philadelphia in March 2017 in a neighborhood that is appreciating rapidly. We have fixed up a lot of things already and are continuing to improve it as we live there. Based upon comps in the area, the house could sell right now at around 20% more than what we bought it for (combination of us buying it a little below market and appreciation).
We plan to live in it until at least the one year mark just due to life circumstances. If the value holds until then, I would like to refinance out of the VA loan into a conventional loan (capturing the 20-25% equity increase) for the same loan amount. Then we would like to use the VA loan again to buy another primary residence in a better school district, but keep this house as a rental.
As background, the house was on the expensive side to begin with so we used the full VA loan entitlement.
My questions are:
1.) Is there anything that would prevent us from being able to refinance out of the VA loan into a conventional if the appraisal supports our projected valuation of 20-25% more than what we purchased it for? For example, do we have to get a lower interest rate or is that only if we are refinancing to a different VA loan?
2.) Could we keep it as a VA loan and purchase the second house using an FHA loan, since neither me nor my husband have used the FHA benefits? We already own another investment property, but financed it with 25% down.
3.) Are there any disadvantages that I am not thinking of?
1) Yes you can refinance out of the VA loan since you are going to live outside of the house after the 1 year point. You do not have to get a lower interest rate, most likely will not beat the VA loan rates.
2) Yes you could do the FHA loan option if you do not pull the trigger on the refinance of the original home in question.
3) Other thing you could do, 1) refinance out of the VA, use another VA loan for the newer purchase. Then wait 6 months or less for another purchase using FHA if your finances support it.
Thanks! We'll keep chugging away on the repairs and renovations till we hit the one year mark. I am glad to hear we don't have to get a lower interest rate, since we did pretty well with it the first time around.
1.) You can refinance out of the VA Loan into a conventional product. VA Loans are able to be cashed out on as well.
2.) FHA limits you to a total of 4 properties, and a maximum of 7 units total, including the subject property.
@Maureen Campbell you certainly can refinance out. Make sure your lender understands that the entire purpose is to go conventional. I was able to do this last year on a former primary. Keep in mind that you must live in it for a year if you do not refinance out. You can use FHA instead of VA if you prefer. If your husband is not disabled then it may be better to do it that way because of the VA funding fee. If your husband has any disability (10% or up) then the funding fee is waived and the VA loan remains amazing forever.
Thanks @Bryan O. ! The VA funding fee is a pain for subsequent uses, but still much better than tying up 20-25% in a property, since we are in a high cost area of town. My husband does not have any disability percentage, so we would be looking at the VA fee as a cost of finding a deal and run our numbers accordingly. We will look into doing an FHA, but the loan limits are about $45k lower for FHA vs VA so we'll just have to find an even better deal to make it work.
@Bryan O. - I was under the impression that the VA loan limits matched the conforming (non-jumbo) loan limits, but that the FHA loan limits were below the conforming limits. http://www.bankrate.com/finance/mortgages/pennsylvania-jumbo-loan-limits-by-county.aspx
@Maureen Campbell go ahead and download the actual FHA loan limits and you can see for yourself:
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