VA Second Home

[DaMajor]

Looking for some advice on buying a second home and turning my first home (VA) into a rental.

FICO MORTAGE MIDDLE SCORE IS 670

First Home VA - Loan Balance around $130K Value around $280  PITI $1300. Rental Value will be $2000-$2200 in our area

We want to move to be closer to family and looking in the range of $250K.

I have enough eligibility to do a second tier but my income is only moderate around $50K with about $250 a month in cc debt.   Will the lender give me market value of the rent?   I obviously have not moved out yet and can't rent till we get another place in another state.

Is it better to shoot for a second tier or try to buy the other property as an investment loan and take 25% equity out of the first home for the down payment?

I'm all ears for any suggestions...

[ShanetheMortgageMan]

If you'd be buying the new home to live in then it wouldn't be appropriate to buy it as an investment property.

VA mortgages typically are one of the best loan options available, they offer some of the lowest interest rates, may not require a down payment depending on how much remaining entitlement you've used up, and have no monthly PMI.  If you aren't exempt from the VA funding fee then you'd have to pay a little higher funding fee due to subsequent use of your VA benefits, and you can compare what the terms are with conventional financing by paying the same amount of "points" with conventional as you'd pay in a VA funding fee on a VA mortgage.  Sometimes the conventional terms will be a little more attractive but keep in mind the points are paid out of pocket at closing whereas the VA funding fee can be financed into the new loan amount.

You can use the rental income on your departing residence to offset it's mortgage payment.  A signed lease may not even be required.  VA includes a specific example similar to yours in their guidelines, which says:

Analysis using Rental Offset of the Property Occupied Prior to the New Loan

Use the prospective rental income only to offset the mortgage payment on the
rental property, and only if there is not an indication that the property will be
difficult to rent. This rental income may not be included in effective income.
Obtain a working knowledge of the local rental market. If there is not a lease
on the property, but the local rental market is very strong, the lender may still
consider the prospective rental income for offset purposes.

Reserves are not needed to offset the mortgage payment on the property the
Veteran occupies prior to the new loan.

The Veteran’s current home has a VA mortgage with a monthly
PITI payment of $1,000. Bonus entitlement is being used to purchase a new
primary residence and the Veteran will rent the previous home for $1,200
monthly upon closing of the new home. The payment of $1,200 can be used
to offset the existing mortgage payment, if all the above conditions are met.
The additional rent received in excess of the mortgage payment cannot be used
as effective income.

[citymunky]

Following. In the same situation as I got orders to the other side of the country after being stationed and living in my current house of over 12 years. 

[LakeLife]

We used NFCU's Military Choice program to buy our vacation home since our primary residence used up my VA loan.  The interest rates are not as good as the VA loan (currently at 6.75% versus 4.875% for VA) but there's no PMI and no down payment required.  At the time we used it, they required 5% down but have since removed that rule.  

Not a bad deal when you consider PMI and/or putting down a high percentage for a conventional loan.  For us, it was a good product.  

[DaMajor]

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@ShanetheMortgageMan wrote:

If you'd be buying the new home to live in then it wouldn't be appropriate to buy it as an investment property.

I agree it wouldn't be apprropriate to buy the second home as investment property, it will actually be our new full time primary.

[VAMortgageGuy]

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@DaMajor wrote:

Looking for some advice on buying a second home and turning my first home (VA) into a rental.

FICO MORTAGE MIDDLE SCORE IS 670

First Home VA - Loan Balance around $130K Value around $280  PITI $1300. Rental Value will be $2000-$2200 in our area

We want to move to be closer to family and looking in the range of $250K.

I have enough eligibility to do a second tier but my income is only moderate around $50K with about $250 a month in cc debt.   Will the lender give me market value of the rent?   I obviously have not moved out yet and can't rent till we get another place in another state.

Is it better to shoot for a second tier or try to buy the other property as an investment loan and take 25% equity out of the first home for the down payment?

I'm all ears for any suggestions...

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Since the new home will be your primary residence, you'll want to stick with VA. As Shane said, VA is typically the best loan program available.

If you rent out your current home for $2,000 per month, that's enough to completely offset your current payment. 

On a 250K house, depending on taxes and insurance, your back end debt ratio would be around 52% based on $4,166 per month in income, an estimated PITI payment of $1,911.45 and $250 month in CC payments. Here's the math: $1,911.45 + $250 = $2,161.45/$4,166 = 51.88%.

That is completely doable going VA.