VA loans are designed specifically for veterans who will live in the property being financed. No investment properties allowed. Okay, there is an exception when you finance a duplex or a 2-4 unit property and live in one of the units as your primary residence, otherwise, VA loans can’t be used for rentals. But if you do want to invest in real estate as interest rates are still relatively low and there are more and more renters, here is what you can expect when applying for such a mortgage.
Rental property mortgages will have slightly higher rates than ones for a primary home. The down payment requirement is at least 20 percent of the sales price although you’ll get a slightly better deal with 25 percent down. These loans are underwritten to Fannie Mae and Freddie Mac guidelines, by far the most common residential mortgage. The biggest challenge beyond the down payment is qualifying for both mortgages, even if the property is rented out. Your mortgage payment plus taxes and insurance might be $1,800 and the rental income on a prospective purchase is $2,500 but lenders won’t use the rental income to help qualify. You’ll have to qualify with your primary mortgage and the new one.
However, once you have two years’ worth of landlord experience, those same lenders will in fact allow that rent to be used to help qualify. That’s why it’s not surprising to find real estate investors who own multiple rental properties. They find out that buying the second and the third property is a breeze as it relates to qualifying. The rental income can essentially eliminate the new house payment. Yes, there’s still a down payment for the new property but qualifying is much easier as it relates to income and new debt. There are other guidelines for investment property loans but the income issue is largely the biggest hurdle. Once you’ve jumped that hurdle, it’s much easier the second time around.