All Forum Posts by: Zack Karp

@Lucien Perreault why can't you use your VA loan again for some time? Did you know that you can use bonus/secondary entitlement to use your VA loan again without refinancing or selling your current property? Or have you already checked into that, and too much entitlement was already charged on the first one?

Your military income should make it so that your income isn't 0.  There must be more to the story...

I am a Military Mortgage BootCamp instructor (I actually teach VA lending). If you want a second set of eyes on this from someone who knows what they are doing with VA lending (and house hacking with FHA and Conventional too), feel free to reach out.

Best of luck and TYFYS!

@Michael Trueba let's clarify, are you talking about buying a primary residence, or investment property?

If investment property, you can throw the FHA 203K out the window, that's for a primary residence only.

Fannie Mae offers the HomeStyle renovation loan, which can be used for a primary 1-4 unit, or an investment 1-unit property.  There are some nuances for this program (i.e. no more than 50% of the loan amount can be rehab), but overall it's not as strict as the 203K.

Outside of HomeStyle, there is no other Conventional option for rehab.

For a regular Conventional loan, the loan amount is based off the lower of the purchase price or appraised value. So to your question above, the answer is no, if the property is worth $150K and you are buying it for $100K, you cannot just finance $110K. It doesn't work like that, no matter the lender, for Conventional financing. You would need another loan type, such as a commercial loan, DSCR loan, portfolio loan, hard money loan, etc, which will all likely come with much worse terms than a Conventional loan.

As mentioned above, your best bet is to talk to your lender.  If you don't have one, find one here on BP that specializes working with investors.  If they don't offer HomeStyle and you want Conventional terms, find one that does.  Just don't call the large online call center lenders, unless you want a guy who was working at Jiffy Lube 6 months ago quarterbacking your financing.

Hope that helps and best of luck!

@Jimmy Watson a key point that is being overlooked are your potential capital gains taxes.  Did you live in this property for 2 out of the last 5 years?  If so, if you sell now, you don't pay capital gains tax.  No need for 1031.  If that's the case, if I were in your shoes, I would sell and reinvest.  No brainer IMO.  It's not going to double again in 5 years, stop dreaming lol.  In fact, the way things are going, this market is setting itself up for not only a slow down or leveling off, but possibly even a retraction in certain areas.  We won't repeat 2007-2009, but certainly this pace will not continue with rising interest rates and the Fed managing inflation.  I like multifamily as a safer play heading into the next 2-5 years with the supply/demand housing chain.

How you choose to reinvest is up to you.  @Joe Villeneuve analysis is spot on.  Equity is dead money that's not working for you, so you should do something to reinvest and restructure.  You have lots of options of where, and what properties, and the only true answer won't come until hindsight.

TYFYS and best of luck!

@Anthony Parsons the reason you weren't/aren't getting good replies is because your initial post was too vague.  Garbage in, garbage out.

Now that you provided your real life situation and numbers, it makes it easier to everyone reply with better answers.

First off, it's a no brainer to sell your home after May 27.  If you lived there 2 out of the last 5 years, you won't pay any capital gains tax (for now, there are proposed tax changes on the hill, one of them is getting rid of that and everyone paying capital gains, period.  Hopefully it will get shot down.)

If you did decide to keep the house, and you get a heloc first, then you likely won't be able to refi after the fact.  The heloc would need to subordinate to the new first lien, and that would be a challenge.  So get that plan out of your head.  So if you kept the house, you would need to refi to Conventional first, and then get the heloc.  Yes you are going to lose your 2.25% rate and you would need to make peace with that, but the longer you wait, the higher it will likely be.

So if I were in your shoes, I would sell, and take those tax-free gains, and reinvest. You can buy another primary residence with 0 down with your VA entitlement, and use the rest for a down payment on another property if you wanted. You could also house hack, meaning you could buy the first home, live in it for a year, then use your secondary/bonus entitlement to buy another home with a VA loan with 0 down (or close to 0, depending on your entitlement), and keep the first one as a rental. For this, your best bet is to get with an investor-friendly LO who also specializes in VA lending, to map out a strategy. Now you have 2 properties and still have all your equity from your sale.

The good thing is, you have options, because you have capital and your VA entitlement, which can be a great combination if you want to have rental properties.

But as far as renting vs buying now, there is no crystal ball.  No one can definitively tell you right now if it's smarter to buy now or in 3 years from now.  Way too many variables and unknowns.  You will need to take a leap of faith either way, and the only way you can truly and accurately answer that question will be in hindsight, years down the road.

TYFYS and best of luck!

 @Anthony Parsons it depends on what type of loan you will be getting, as Fannie Mae, Freddie Mac, FHA, and VA all treat the heloc differently. And also the rental income from your departing property, if needed to qualify.

For example, if you were buying FHA, and you need to use rental income from your departing property to qualify, getting a heloc over 75% LTV would shoot you in the foot because you will need an appraisal to prove you have 25% equity in your departing property in order to use rental income to offset the payment. VA does not have that requirement.

But to answer your question on the actual heloc payment, and how it affects you, VA will allow you to just use the actual monthly payment on the amount actually drawn on the heloc, not based on the full line amount. And with VA, unlike Conventional and FHA, there is no hard stop max DTI, rather it's based on your residual income. However, some lenders have overlays, which are more strict qualification requirements over what the VA requires. For example, we don't have any overlays, we underwrite directly to the VA guidelines. So it's best to check with your lender on all that, and make sure they don't have any overlays, and no surprises, before you get the heloc.

TYFYS and best of luck!

 @Anthony Parsons at those price points, yes you should be able to use secondary/bonus entitlement for another VA purchase. You or your loan officer would need to check your COE from the VA to see what entitlement was charged on your current home, and see what your eligibility is for the next home. You can easily figure this out so you can plan ahead. If anything, maybe you won't qualify at 0 down, but maybe a very small down payment needed where it makes sense to use VA again. And then you don't need to refi and lose that awesome rate, you will likely never see rates that low again.

TYFYS and best of luck!

@Sean MIddleton that is absolutely false.  You can use rental income.

If you are talking about the rental income from a property you are purchasing, you will be able to use the lower of the actual rent or the market rent on the appraisal.

If you are talking about the rental income from properties you already own, you can use leases if they were recently acquired, otherwise if they have been reported on your tax return Schedule E, it will be calculated off that.

This is not an Indiana thing.  Sounds like either the LO you are working with doesn't know what they are doing, or that lender has overlays on top of the actual guidelines.  Run...

If you want to discuss your situation further in more detail, feel free to reach out.

Best of luck!

@Ryan Ribinskas I would sell the house now and avoid paying capital gains tax, since you have lived there 2 out of the past 5 years. By selling, it will restore your VA entitlement to buy another home with zero down, as you mentioned. The right lender will be able to let you sell and purchase same day and restore that entitlement for you. With the proceeds from the sale, you can use that for rehab on the new home, and/or as a down payment for an investment property.

TYFYS and best of luck!

@John Warren thanks for the tag!

@Steven Caldwell feel free to reach out if you want to discuss any strategy

@Jake Fugman thanks for the tag!

@Carli Schlaker mapping out a strategy and getting preapproved is your first step. As Jake mentioned, there are a lot of nuances with the guidelines for FHA and Conventional loans that are important for house hackers and investors, that most loan officers don't take the time to educate you about. The goal is to make sure that you don't buy the wrong property and get stuck, which unfortunately is what happens with a lot of new investors when they don't have the right realtor and loan officer on their team. Just buying a multifamily property is not the same as building a real estate portfolio, and the exit strategy of each step and looking a couple moves ahead is critically important to your long term success. Feel free to reach out if you want to connect.

Best of luck!