The VA Rental Mortgage Loophole

The inside scoop on this legal trick

Of all the tricks and investment property financing tips I point out in my real estate investing articles, the VA mortgage loophole is one of the better ones.  Veterans Administration (VA) mortgage loans, traditionally offering financing of 100% of the purchase price on a home for veterans, are designed specifically for homes – that is, owner–occupied houses. However, VA loans, like most FHA loans, allow for financing of 1-4 family homes as long as the purchaser will be an owner-occupant. So if you qualify for a VA loan, you would be able to purchase a two, three, or four family investment property, live in one unit, and rent out the other units in the building. All the while taking advantage of 100% financing provided by the VA, in a de facto rental mortgage loophole.

Qualifying veterans

As long as you are the owner-occupant at the time of the loan, you could qualify and take advantage of low rental home mortgage rates. But let’s say you do this, then decide to move after a period of time. The loan would stay in place, and in theory, you could look to repeat the procedure. Keep in mind that any veteran has an amount that he would be qualified to borrow without having to make a down payment on the property. If all of a veteran’s allowance is not used up on one property, he could utilize the remainder to obtain 100% financing on another property. In this way, you could start building up investment properties utilizing strictly VA loans.

Another investment mortgage loan possibility

The VA also offers another excellent choice of financing for veterans. It’s called the Interest Rate Reduction Refinance Loan (IRRRL). This program would allow a veteran to refinance a property that had been formerly bought with a mortgage from the VA. This would be done, ostensibly, to obtain a lower rate of interest on the loan. This Interest Rate Reduction Refinance Loan also has some unique provisions regarding owner-occupancy. For example, it does not require the owner to live at the property – only that he once lived at the property. This would offer a veteran the ability to buy a multi-family property, live in it, and then eventually obtain this IRRRL mortgage at some point in the future. In this scenario, one could then move out and purchase yet another multi-family under four units, live in one of them – and obtain yet another VA first mortgage with no money down. You can see how much leverage these types of investment mortgage loans can produce…and they’re not really investment mortgage loans per se.

Using your equity as leverage

Finally, a veteran would be able to utilize his equity in each succeeding investment property he acquires in order to leverage the acquisition of even more rental properties. He could use the IRRRL route of mortgage financing, or decide to utilize other forms of non-VA, traditional rental mortgage loans from banks or other lenders.  Either way, he’d be substantially increasing his investment property acquisitions by wisely using leverage to its optimum advantage, simply by taking the accrued equity from each of his properties and plowing it back into other property investment purchases.

 

 

photos courtesy of  albanyhomes411.com, salending.com, americanhousingbuilders.com