Multi-Unit Property Securing with VA home loan rules questions

3 Replies

I got out a year ago, but I'm already refinancing my own house into my name, I inherited my mother's house. My long term goal of next year is to buy a 4 Plex with a VA home loan. Now discovering VA rules on buying a 4 Plex using a VA home loan complicates things. How can I be a landlord if I don't have any rentals?? Only way I can get any property management experience is become a Real Estate Agent, without owning any properties. My income right now is around $4k/month.

Let's just say a property is worth $249k and mortgage lets say is $1,300/month including PITI that's $7,800 just round it up to $10k to be safer. I plan to refinance my own home to $70k and need only $20k for fixtures on my moms house. I could use the $10k as a down payment for the 4 Unit.The whole point of VA home loans is no money down but why Multi Units? I don't have a wife, kids and I'm going to college and working full time. All I really need is an apartment size like my barracks room. Can anyone give me advice on this.

o. Rental Income (continued) Note:A percentage greater than 75 percent may be used if the basis for such percentage is adequately documented.
Verification:Rental of the Property Applicant Occupied Prior to the New Loan Obtain a copy of the rental agreement on the property, if any.

Analysis:Rental of the Property Applicant Occupied Prior to the New Loan

Use the prospective rental income only to offset the mortgage payment on the rental property and only if there is no indication that the property will be difficult to rent.This rental income may not be included in effective income.


Obtain a working knowledge of the local rental market.If there is no lease on the property, but the local rental market is very strong, the lender may still consider the prospective rental income for offset purposes.


Verification:Rental of Other Property Not Securing the VA Loan

Obtain the following:

documentation of cash reserves totaling at least 3 months mortgage payments (principal, interest, taxes, and insurance - PITI), and

individual income tax returns, signed and dated, plus all applicable schedules for the previous 2 years, which show rental income generated by the property.


Analysis:Rental of Other Property Not Securing the VA Loan

Rental income verified as stable and reliable may be included in effective income.If there is little or no prior rental history onthe property, make a determination based on review of:


documentation of the applicant’s prior experience managing rental units or other background involving both property maintenance and rental

any leases on the property, and

the strength of the local rental market.


Property depreciation claimed as a deduction on the tax returns may be included in effective income.

2.Income, Continued

Continued on next page

o. Rental Income Verification:Multi-Unit Property Securing the VA Loan Verify:
cash reserves totaling at least 6 months mortgage payments (principal, interest, taxes, and insurance - PITI), and

documentation of the applicant’s prior experience managing rental units or other background involving both property maintenance and rental.


Analysis:Multi-Unit Property Securing the VA Loan

Include the prospective rental income in effective income only if:


evidence indicates the applicant has a reasonable likelihood of success as a landlord, and

cash reserves totaling at least 6 months mortgage payments are available.


The amount of rental income to include in effective income is based on 75 percent of:


verified prior rent collected on the units (existing property), or

the appraiser’s opinion of the property’s fair monthly rental (proposed construction).

n. Income of Recently Discharged Veterans (continued) (2) Voluntary Separation Incentive (VSI) Annual payments

Taxable in the year received

Include in effective income

Calculated by multiplying the veteran’s years of service times two

Requires a minimum of 6 years service (equates to a minimum of 12 years annual payments)

If the veteran receives both VSI and VA disability compensation payments, the VSI is reduced by the amount of disability compensation.However, if the disability compensation is related to an earlier period of service and the VSI a later period of service, the VSI is not reduced by the amount of disability compensation.

VSI is reduced by the amount of any base pay or compensation a member receives for active or reserve service, including inactive duty training.

The veteran can designate a beneficiary for VSI payments in the event of death.

2.Income, Continued

I'm not sure what you're asking for exactly, but I'll try to help a little. The VA loan considers 1-4 unit properties as the same thing, so as long as you plan to occupy the 4plex you want to buy next year as your primary residence (which would mean selling moms house that you inherited, or turning that house into a rental).

So if you want to use your VA loan to buy a 4plex, you go about it the same way you would to buy a Single family house. If you want to do a 0 down then go ahead, the VA loan allows that.

As for getting PM experience, you don't need PM experience if you plan on living in 1 unit and renting the other 3 out, you'll gain that as you go through the ownership process. If you want to get some before buying the 4 unit, you could rent out rooms in your inherited house and see how that goes, but experience is not required. 

I cannot make sense of your entire paragraph with the numbers in it. If you have a 249k mortgage with PITI of 1300/month, that's 15,600/year not 7800 or 10k. You plan to refi your mom's house you inherited to 70k, well what is it worth? Or you doing a cash out refinance and getting money out of the house, if so how much? All 70k?

I don't understand your sentence "The whole point of VA home loans is no money down but why Multi Units?", what does no money down have to do with it being a multi? A lot of investors like Multi  unit properties for economies of scale, and diversified risk. 

As for rental income being included in your Debt to Income ratio to qualify for a loan, I don't know the rules, but generally if it's not on your tax return, and/or they take a percentage of rent and apply that to the formula. On the 2nd Income rules thing, they're saying if you want to use rental income towards your DTI formula for qualification on the loan, then you must have 6 months reserves (which you'll need regardless) and prior PM experience. But if you have enough income as is, then you don't need to worry about that part. I imagine as a single guy with 4k/mo income your DTI is pretty low.

i hope this helps.

Good Luck

Cheers!

Originally posted by @Donald S. :

I'm not sure what you're asking for exactly, but I'll try to help a little. The VA loan considers 1-4 unit properties as the same thing, so as long as you plan to occupy the 4plex you want to buy next year as your primary residence (which would mean selling moms house that you inherited, or turning that house into a rental).

So if you want to use your VA loan to buy a 4plex, you go about it the same way you would to buy a Single family house. If you want to do a 0 down then go ahead, the VA loan allows that.

As for getting PM experience, you don't need PM experience if you plan on living in 1 unit and renting the other 3 out, you'll gain that as you go through the ownership process. If you want to get some before buying the 4 unit, you could rent out rooms in your inherited house and see how that goes, but experience is not required. 

I cannot make sense of your entire paragraph with the numbers in it. If you have a 249k mortgage with PITI of 1300/month, that's 15,600/year not 7800 or 10k. You plan to refi your mom's house you inherited to 70k, well what is it worth? Or you doing a cash out refinance and getting money out of the house, if so how much? All 70k?

I don't understand your sentence "The whole point of VA home loans is no money down but why Multi Units?", what does no money down have to do with it being a multi? A lot of investors like Multi  unit properties for economies of scale, and diversified risk. 

As for rental income being included in your Debt to Income ratio to qualify for a loan, I don't know the rules, but generally if it's not on your tax return, and/or they take a percentage of rent and apply that to the formula. On the 2nd Income rules thing, they're saying if you want to use rental income towards your DTI formula for qualification on the loan, then you must have 6 months reserves (which you'll need regardless) and prior PM experience. But if you have enough income as is, then you don't need to worry about that part. I imagine as a single guy with 4k/mo income your DTI is pretty low.

i hope this helps.

Good Luck

Cheers!

Yes I plan to rent out my moms house, which is WIP fixing up at the current moment but I have to refinance it in my name which I am currently working on. Just waiting for the HAMP is exhausted mid Aug/Sep and 2% interest rate goes up to 4%. My house is worth $90k on tax assessed value but $125k on market value in premium condition. I owe around $43k on the house, so I plan to refinance it up to 60k to 70k. Use around $20k for fixing like siding, roofing, driveway, etc. I am trying to prep myself and get my ducks in order to buy a 4 unit next year which is my goal.

I just heard about the "reserves" rule and I thought it meant it was a down payment. The reserves is you have that amount of cash in the bank? I was doing example a mortgage calculator giving me $1,300/month(PITI). Regardless what amount, so I have to have 6 months in advance in cash reserves wanting to rent it out for a 2nd income? $1,300 x 6 months = $7,800. This year and following up next year is just paying off unnecessary debt, working on paying off my auto loan, will bring my DTI even lower.

Ok, so a little better info. So mom's house has 43k of debt on it, you plan on doing a cash out refi to 70k, using the net 27k as repairs on the house and possibly saving some of that money. Will you be selling the house at that point or keeping it as a rental? 

For any conventional (I mean any loan from a bank, whether it be FHA, Conventional, or VA) loan they're going to want to see that you have at least 6 months worth of mortgage payments (including Taxes and Insurance) saved up. Fortunately they will usually count retirement accounts towards that total, so TSP or an IRA would probably count (although anything invested won't be counted at face value, they'll do a % of the total to protect against a down market hurting those reserves). As for DTI, with only 1 house it's hard to have a DTI that's too high, as long as you're below 35% you should be fine, if you get near that then you'll need a mortgage broker to break out the complicated software that give you a real DTI number which is more complicated than debt payment/paycheck.

Good Luck, 

Cheers!

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