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Mortgage Guide

How to get a home loan

Leverage your VA Loan Benefit and purchase a multi-unit property to build wealth


At NewCastle Home Loans, we’ve seen some very wise moves by honorably discharged U.S. veterans recently. They are embracing their earned eligibility and using a VA Loan to invest in a property worth far more than if they bought just a single-family home. Once they are employed, they use their VA Loan Benefit to invest in a multi-unit property and live in one of the units at a substantially discounted cost.

What a great way to come back after your brave service!

If you’re a veteran in the hunt for a home, you’ve likely heard about some of the recent enhancements to the VA Home Loan Program. You can now set out to buy a small apartment building with up to 4-units (as long as you reside in one of the units) and buy it with $0 down. On top of that, there is no monthly mortgage insurance and rates are lower than a conventional loan!

Seems to good to be true? It’s easier and more common than you think!

We’re currently helping a veteran and her husband close on a mortgage for a 2-flat in Chicago. Not only does the building perfectly fit their needs, but also the rental income greatly reduces their portion of the property costs. They plan to save money on their living expenses and build equity as the Chicago market keeps making strides.

If you’re looking to buy a $250,000 home, you likely can go up to $350,000 or more on a 2-unit property. If the real estate market in Chicago goes up another 5% next year, would you rather make 5% of $250,000 or $350,000? That is rhetorical, of course, but you see why this makes sense in the big picture.

Before we dive into using a VA Loan to buy 2-4 unit property, here are some VA Loan facts to remember:

1. VA Loans are not the same as FHA Loans - they follow different guidelines.

2. The VA Loan limit in Illinois is $484,350. You can see other state limits here. Unlike FHA and Conventional loans, there is no difference in the number of units.

3. You must live in the property you are buying.

4. The veteran may not purchase the property, live in it for a few years, then move out to use as an investment property. The veteran makes a legal contract with the VA when using these loans.

The big question: Can I use the rental income of the other unit(s) towards by qualifying income for the mortgage?

The short answer is “yes.” However, there are some important details to note in order to make this work:

  • You only get 75% of the lease amount, which is also standard with Conventional loans.
  • In order to use the rental income, you must have approximately two years of “landlord experience” by previously owning a multi-family home, managed a rental unit, or worked in the capacity of a property manager. This must be verifiable and documented.

There are exceptions, but not if you are a first-time home buyer. Just plan to qualify with your income for the entire property cost, unless you meet the criteria above.

What if I have to use the rental income to qualify for the property?

If you do not have landlord experience, must use the rental income to qualify for the property, and have some savings or a retirement account, you need to have six months of reserves. This means after you close, you must have enough money in your accounts that would cover six months of the entire property costs.

The good news is, you can use a percentage of your retirement accounts for this. But in cases like Chicago and other high taxed areas, that can be a lot of money, especially with 3-4-unit properties.

There are standards set in place to protect veterans from bad purchases.

An additional benefit is that there are standards designed to prevent veterans purchases from buying properties that are not sound, safe, or sanitary. The Department of Veterans Affairs has a set of Minimum Property Requirements (MPR) that will be verified by an independent VA appraiser. MPR guidelines include but are not limited to the following:

  • The property must be 75% or more residential.
  • Infrastructure requirements must be met, which includes the roof is in good condition, ensures the basement foundation (if applicable) is sound and leak-free, and safe stairways. The mechanics like the heating, air conditioning, windows, and plumbing need to be in good working order. In addition, the property must have a sanitary system and safe drinking water.
  • A termite inspection is required.

All in all - you’re protected as a veteran. The property must be in good, livable condition.

Finally, you must live in the property.

There are very few exceptions to this rule, so plan to live in the property for two years so you can maximize your tax-free gain when you sell!

Flipping a property has its benefits too.

There is no waiting period to purchase properties that are being “flipped,” which makes gut rehabilitated buildings ideal for the veteran buyer. With FHA, there is a 90-day waiting period.

If the developer does a nice job, you can buy the unit while it is still under construction soon after the flipper purchases the property (subject to a final inspection). This advantage will put you on par with conventional offers. The credit score requirements are also very flexible, as they are designed to truly be a reward for your service.

NewCastle is here to help.

NewCastle Home Loans feels the VA market is under served, and we have made it our mission to accurately inform the veteran and be their asset by providing expert service. If this interests you, please do not hesitate to use our free VA Loan Calculator. With rates still low, you owe it to yourself to take advantage of this benefit and begin to build wealth after your service.

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