VA LOAN CAPTAIN BLOG & Learning Center

How To Be A Landlord

By: Grant Moon 04/27/15 11:17 am

The VA home loan benefit is designed to be used by those who qualify to buy a home used as a primary residence and not to acquire rental property. Yes, a home originally used as a primary and turned into a rental property later on is okay but VA guidelines are pretty strict as it relates to occupancy. But if you are a veteran or otherwise VA home loan eligible and you want to start buying rental properties, where do you start?

In today’s environment, that absolute best place to go when financing a rental property is the same place you typically go for a VA home loan. Conventional mortgages, those underwritten to standards issued by Fannie Mae and Freddie Mac, are the best choice when purchasing an investment property. Most any mortgage company offers these loans.

In order to qualify for such a mortgage, you’ll be asked to provide at minimum a 20 percent down payment. If you put down 25 percent, you’ll get a slightly better rate. But here’s the kicker with these loans—you have to qualify without the benefit of any rental income generated by the unit. You’ll need to have sufficient income to comfortably handle your current housing needs and credit obligations along with the new house payment, plus taxes and insurance. Lenders waive this guideline if the borrower can prove two years of landlord experience, this is accomplished by reviewing IRS Schedule E that accompanies a federal income tax filing.

Schedule E will show the mortgage interest, taxes and insurance on the property as well as any related expenses for maintenance and repairs, along with an amount dedicated to depreciation. Owing rental properties can provide some income tax relief when deducting these expenses from rental income. If you do have two years of landlord experience, then the lender can count the income from the rental to help qualify.

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