You have been mulling over the possibility of investing in real estate for awhile now. Ever since you returned from service, you have been hearing that the real estate market is hot. Of course, you have to figure out how to finance this new enterprise. Lucky for you, we have compiled this great introduction to VA loans for newbie real estate investors.
The Mortgage Basics
When you buy a house, you will take out a mortgage, which is a loan to buy a house. Investopedia has a great tutorial on mortgage basics. For most people, they will select a 30-year fixed rate mortgage. This mortgage allows you to pay back the mortgage over 30 years at a fixed interest rate, which is the fee you pay to the mortgage company for giving you the loan. You can also get a adjustable rate mortgage where interest changes over time and finance the mortgage for shorter terms, like 15 years. Costs for the traditional mortgage includes a down payment and other closing fees, which can be substantial depending on the mortgage terms.
How being a Vet Helps with Rates
If you are a veteran (certain conditions have to be met), you qualify for a mortgage guaranteed by the Department of Veteran Affairs. This mortgage has low home loan rates for veterans, to the tune of .25% to .375% lower than other mortgages. VA loans also do not require a down payment from the buyer and each veteran gets an entitlement amount, which is the amount the VA will guarantee in a mortgage. To find out more about the basics of VA loans, check this article from InterNACHI.
How you can invest with a VA Loan
Chris Birk wrote a great article for the Veterans United Network on how you can use a VA loan for investing. Unfortunately, you can’t use the loan for picking up a Single Family Home for investment purposes as there is a occupancy rule tied to the loan. However, you have the ability to buy a Multifamily home, such as a duplex or a triplex, as long as you live in one side of the property. You also have the option of renting out a Single Family home after living it for the required time, and then you are free to purchase another property. You can even use another VA loan if your entitlement amount allows for it.
In summary, if you are a veteran, you can get a special loan guaranteed by the Department of Veteran Affairs, but are restricted on how you can use it for investing. Be sure to check with your mortgage professional for all the details!