How Can I Start a Real Estate Empire With My VA Loan Benefits?
Most people aren’t interested in starting a real estate empire with their VA loan benefits, so for the poor few who are, this question never really gets addressed properly. Many an entrepreneurial veteran have fallen to the pitfalls of trying to use their VA loan benefits to bring home the bacon. In this article, we’ll go over the purpose of the VA loan program (hint: it’s not for empire-building), the restrictions and the abilities of the program. Sure, your VA loan benefits may be able to provide a small boost in the early stages, but by and large, your benefits will be a lot less important than your skills, hard work, and patience.
The Purpose of the VA Loan Program
In the famous words of POTUS: “Let me be clear.” The purpose of the VA loan program is to assist veterans in obtaining suitable housing that meets their needs with better terms than they could otherwise receive. Therefore, the VA is more interested in helping a young married veteran with two kids afford a big enough house in a nice neighborhood than helping you get enough of a discount to make a profit on selling or renting a property. You’ll find, as you learn more about the VA loan program, that the VA focuses pretty heavily on their stated purpose and doesn’t deviate from it much. However, at the same time they try to make sure that no matter what situation a veteran is in, they are able to use their VA loan benefits to improve their situation.
Restrictions on VA Loan Use
Because the VA is concerned that VA loan benefits might be misused, they’ve put in place some restrictions on how the program can be used. One restriction that may put a kink in your plans is that you cannot purchase a property with more than 4 residential units and 1 commercial unit with your VA benefits. In other words, no big apartment complexes for the VA borrower. Another major restriction that will cause you a problem is the occupancy requirement.
As if those two restrictions weren’t enough to dash most of your hopes, you’ll also face a restriction simply because you only have so much entitlement; you only have so much VA loan benefit that the VA is willing to guarantee on your behalf, so if you don’t have enough entitlement left over, you cannot purchase another property with your VA loan benefit. Many borrowers use up all of their entitlement on the first property they purchase. Especially if you’re buying a property with four residential units, you’ll almost certainly max out your entitlement in order to get the loan on it. However, these restrictions are a good lead-in to some of the abilities the VA loan program provides you.
Abilities of the VA Loan Program
We’ve talked about some of the restrictions, now let’s talk about some of the abilities. I mentioned above the possibility of having two properties financed with a VA loan at one time being limited by how much entitlement you have, but isn’t it already limited by the occupancy requirement? To explain, allow me to share a conversation I had with my lender. In order for our debt-to-income ratio to be low enough to qualify for our home loan, we needed to pay off and close a credit card. Our lender explained that it just needs to be closed until we close on the loan, then we can do whatever we want (as long as we still make our mortgage payment). In other words, our debt-to-income ratio isn’t periodically evaluated as a condition of maintaining our loan. Neither is the occupancy requirement. You have to certify that you intend to occupy the property as your primary residence, but there’s no requirement that you have to be using it the entire time it’s financed with a VA loan.
Another ability the VA offers you is a streamline refinance, so when you need to refinance your property (or properties for the real estate mogul), you can do so extremely quickly and cheaply. The VA streamline is a powerful tool for saving money and getting a lower interest rate.
So, hopefully now you understand a little bit better the obstacles in the way of using your VA loan benefits for empire-building and also the things that you are able to do.