Sound to good to be true? This can be done by a Veteran, active service member, or qualified surviving widow of a service member purchasing a new home with a VA home loan! These days if someone wants to rent out their current home and then purchase a new primary residence, most programs require either 2 years of tax returns proving the rent or requiring an appraisal to prove 30% equity in the home and a copy of signed one year lease with first month rent paid.
Well with a VA guaranteed home loan, a buyer may rent out their current house prior to closing, use up to 100% of the rent amount to help offset the current mortgage payment, and then use VA to purchase the new home with no money down.
Here are the general guidelines for a VA purchase and leasing current home:
- Current mortgage can be any type including VA (read this blog on using bonus /2nd tier entitlement)
- The current home must be converted to a rental during the purchase process of the new home or must have 2 years tax returns. So if someone started renting out the house 6 months ago, they must wait for 2 years of reporting the income on the tax returns
- 100% of the gross rent may be used to offset the current mortgage payment including principal, interest, taxes, insurance, PMI, and HOA dues up to the total payment
- If the rent is more than the total current monthly housing expense, the extra profit cannot be used as income for the new mortgage. But if there is a loss, that is subtracted from the qualifying income
- Requires a signed lease agreement on the current residence for 12 months to count the income and may require proof of the security deposit or first month’s rent
- No appraisal of the current home is required to count the rental income
- All other normal VA guidelines apply