Here’s a popular scenario for military buyers: A buyer currently in the military has been relocated and wants to purchase a primary residence with a VA mortgage to get 100% financing, but the buyer already has a VA loan on the prior residence which is now rented out. Can this be done?
There are actually two major VA guidelines to look at in this scenario besides the normal credit, income, etc:
- Getting a 2nd VA loan on top of the VA loan on their current or previous residence
- Can we count the rental income from the prior residence with no or little equity in the property?
- A buyer may purchase another home under certain circumstances with a VA loan while having another existing VA loan. In order to take advantage of this one-time exception, the veteran would have to borrow $144,000 or higher on the new home. This is called accessing their 2nd Tier Entitlement or also called Bonus Entitlement. There are other requirements such as the loan making sense. If the buyer was relocated, that is a good reason for instance
- Unlike FHA and conventional loans which require 25% verified equity in the home that has recently been converted from a primary residence to a rental property to count the rental income, VA will allow it when verified by a signed lease agreement and proof of received rent. When retaining the home, 75% of the lase can be used to offset the mortgage payment but no income can be used if it is a profit. So if the mortgage payment is $750 and the rental income is $1000, it is a wash.
Contact Team Move today to expertly walk you through your next VA mortgage loan.