The Veteran’s Assistance loan or the VA Loan as it is generally called, is an amazing loan. We bought our first and fourth house using the VA loan (using the same loan). Over the years I have seen a lot of myths perpetuated and questions asked regarding this loan.
As a self-proclaimed empire builder, who is also a mortgage nerd who struggles to understand this awesome but complicated loan, I put together this guide. I hope this helps you not only have a better understanding about the loan itself, but also about the different benefits that you might not have realized it offered.
Reluctant Landlord’s Guide to the VA Loan
Eligible Parties:
While everyone always associates the VA loan as the loan for those who served in the military or veterans, there are eight parties that are eligible for the VA loan.
- Veterans.
- Current or former National Guard or Reserve member who has been activated Federal active service.
- Active Duty Service member.
- Current National Guard or Reserve member who has been Federal active service.
- Discharged member of the National Guard who has never been activated for Federal active service.
- Discharged member of the Selected Reserve who has never been activated for Federal active service.
- Surviving Spouse in Receipt of DIC (Dependency & Indemnity Compensation) benefits.
- Surviving Spouse and not receiving DIC (dependency & Indemnity Compensation) benefits.
You can find more information and how to prove your eligibility on the VA benefits website. The specific service requirements and time periods can be found here.
Use
Unfortunately, the VA loan cannot be used for ANY type of purchase. Like many federally sponsored programs there are very specific requirements to what can be bought with a VA loan.
As defined by the VA, the loan can be used for five types of homes, all of which must be your personal home. The specific VA wording can be found here.
- Buy a home or condominium unit in a VA approved project.
- Build a Home.
- Simultaneously purchase and improve a home.
- Improve a home by installing energy-related features or making energy efficient improvements.
- Buy a manufactured home and/or lot.
My Thoughts:
Condominiums – Personally, I will not buy a condominium. The VA, FHA and other government approved loans have very specific requirements regarding condominiums. At one point (not sure if it is still in play), complexes that had more than 30% that were rentals were not eligible for these programs.
Once these complexes were no longer eligible to meet these requirements these units sat longer and even lost value. To further exasperate the problem, many condo communities have or create rules regarding the number of rentals allowed or they forbid it all together. This creates a huge issue regarding an exit plan. This is why I don’t buy condos and I check all HOA’s very closely to make sure there are no laws against making my home a rental once I move out of the area.
Multi-plex – The VA allows you to buy a single family, duplex (2 units), triplex (3 units) and a quadplex (4 units). The key is that you have to live in one unit, however, you are still allowed to rent the other unit(s) out.
Eligibility
Once you know that you qualify, the next step is to figure out your eligibility. Unfortunately, it’s not as simple as it sounds because it’s based on your location. The lowest total amount is $417,000 for a single family. All the numbers after that are based on location and the number of times the loan has been used. The VA location list to check eligibility can be found here.
The funding fee works is also based on your current location. For example, If you lived in Virginia Beach you would have $458,850. The amount changes based on your physical location.
Multiple Loans
The great thing about the new VA rules is not only are you given a set amount, but you can buy as many houses under the amount of the last local place. You entitlement includes the purchase price AND the funding fee (described below) of your location.
This is the Equation: Current Location Entitlement – Previous Entitlement(s) if you have multiple (Funding Fee included) = amount you have left.
Personally, we have bought two houses with the same loan. Our first house was bought in Virginia Beach. We paid $234,000 and after the funding fee we had used $239k. We then bought a $163k house in Hanford, CA, for $168k after financing. While these are off the top of my head, the point is you can totally buy multiple houses. The key is to make sure you have money left over from the first house, so you can use it again.
The location amount is based on your last amount. So currently, we have used up a little less than $417,000 so most locations we would move to would not have anything less. That being said there are a few places that have a top limit of closer to a million. In one of those locations we would be able to use the difference (approx. 500,000) to buy another house.
So just because you are “out” in one location in regards to your VA loan eligibility, does not mean you should not have your mortgage broker check your eligibility in the next place you go. It never hurts to ask, you could be missing out on an opportunity!
Financing Above Your VA Loan
The VA loan does allow you to finance above your VA loan amount. The key thing to note is anything above the VA funding amount requires a down payment of 25%. So if you go above your funding amount by 10,000 you will now owe a down payment of $2,500.
It important to check all the rates. The last time I checked, mortgage rates for the VA loan they were MUCH lower than many of the of the rates available. Even with the funding fee, and having a down payment amount, this might have a lower payment than another type of loan–ESPECIALLY if you qualify for the funding fee to be raised.
VA Funding Fee
The VA funding is the only downside to the VA loan and using it for multiple loans. The VA loan charges a funding fee for all their loans. The rates depends on a couple of different variables so certainly look at this chart to figure out your funding fee.
Waiving of the Funding Fee
If you have a VA disability rating then you should definitely check out this article. I explain all the regulations and how all those fees/other expenses could be waived.
The VA loan is truly an amazing loan. There are so many nuances and great benefits. I highly recommend you find a great mortgage broker who can walk you through all the different possibilities. Did I miss anything regarding the VA loan? What has been your experience?
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VA loans can be a great way for Service men and women to get their first home. I had a roommate that went into the ROTC and he got his first home with a VA loan. It’s nice to know that there are services out there that are willing to help out and give back to those in the armed services.
Glad you liked the article! We bought our first house using the VA loan and it was such a financial blessing.
VA loans seem like a great way for armed service men and women to buy or build a home! I wasn’t aware that there was a special kind of loan available for service members and their families. I think that this is a great way for America to give a little back to those who dedicate their lives to protecting our country! I have a friend in the Navy who is currently looking for a home, so I’m going to mention VA loans to him to see if he’s applied for one yet. Thank you for the information!
Glad you found it helpful! We used it twice and it was a great asset.
Are there any restrictions for renting out a single family home obtained through a VA loan? I know the homeowner needs to live there within 60 days (I think), but is there a minimum requirement for staying there before they can rent it out?
They require 12 months but than allow for unforeseeable events such as military orders, triplets in a one bedroom condo etc.
Hi, great article. I really love your website. I live in Tucson, AZ. I am a Navy Veteran, not retired but service connected at 70%. I would like to set up additional income streams and this seems like a way to do it. I bought a townhouse about a year ago using a VA loan financing $86,000 My question if I understand what you’re saying right, is could I use what remains of the $417,000 of VA eligibility to buy another home here in Tucson and rent out the Town home while living in the newly purchased home?
That is exactly how we got started. We had a house in VB. When we were transferred to Hanford CA, we used the rest of the entitlement to purchase the home.
Thanks for the info! I’m trying to find info on my situation. We purchased a home in Davidson County, TN (only using about 250,000 of the 425,000 eligible) now it looks like we may have to purchase in MD due to a PCS. Where we are looking to buy has an eligibility of 517,500. We will be LUCKY if we find something in the low 500,000 range! We want to keep the TN house but we aren’t sure how to do that and buy in MD using the VA loan. Can we even? Do we have to convert the TN loan to conventional? Not really sure what our options are (we have little to no available funds for a downpayment). Thank you for your input!
The VA loan allows you to go over the limit but you owe 25% above the limit as a downpayment. You can refinance the VA loan to conventional but there are equity requirements. Personally once we exceeded the VA loan we simply did 5% down conventional loans.
I wasn’t aware that the lowest total amount loaned for a single family is $417,000. I’ve heard that that amount could differ based upon a wide variety of circumstances. Is that true? I’ll have to keep these tips in mind if I ever meet a veteran who is in need of a VA loan.
VA loan entitlement doesn’t go BELOW 417,000. The VA loan for higher cost of living area it goes higher. It also goes higher for multi-plexs.
Hi thanks for the information. I am A veteran that is retired and i am looking to purchase homes to renovate to try to make a profit. If you could give me the links to where it states you can buy two houses. If you do buy two homes can it be at the same time or does it have to different times? I have gone to the va website but I have had no luck finding these answers. The being a resident of the house is it 12 months that I live their even if i put my house up for sale a month earlier.
VA loans can only be used a personal properties aka buying with the intention of living in the home. So you can not buy them as an investment. Hope this helps!
So if I have a va loan in one state and about to close on a second va home in another state. I can purchase a 3rd home in either state and not pay the funding fee and use whatever is left on the 417,000 from either state?
Unless you have disable vet status you will have to pay the funding fee. You can puchase a 3rd home as long as you have entitlement left AND it is above a certain amount. If memory serves me correctly it is $120k or so
My husband will retire end of November 2017. We sold our home in AZ and planned to purchase a home in ID. We are being told that until his actual retirement we can not get VA funding. He is still on active duty pay until November. I still have a hard time believing this is accurate. Is this true? I wish we would have known this before we sold our current home. Until we can get the funding we are staying in our 5th wheel. Is there anyway around this?
Thank you in advance