Quick Start Guide to VA Loans For An Investment Property

Unlock the potential of VA loans for real estate investment

If you are part of the military community either as a veteran, active member, or spouse, here’s the good news- you qualify for the VA loan! Never heard of it? Well, it's a powerful house financing option reserved for service members. With access to this financial tool, your dream of owning an investment property is not far from reality. 

Lots of questions about VA loans might be crossing your mind right now. For instance, other than being a military officer, what are the other requirements? Are there benefits, and how do you go about it? That’s what this guide is all about.

So, if you are interested in getting a piece of real estate, stick around and understand all you need to know about VA loans for investment properties. 

What is the VA Loan, and Where Can You Get It?

Understanding and appreciating the VA home loans begins with understanding how it came about. The VA loan is part of the Servicemen’s Readjustment Act, ascended into law in 1944 after the Second World War 2 under President Franklin D. Roosevelt. 

The loan was put in place as an appreciation and to help veterans readjust. However, the goal wasn't all about providing them a home but allowing them to build a future. 

With that out of the way, what is a VA loan? This is a mortgage loan for people or spouses of those who serve or have served in the military. It has little to zero downpayment, requires no private mortgage insurance, and early payoffs attract no penalties. And while private lenders issue it, up to 25% of its value is guaranteed by the Department of Veterans Affairs (VA). 

Getting a VA loan for investment property is easy with many lenders online. Look for one with favorable terms and submit your application for quick approval, provided you qualify. Some of the leading lenders include Rocket Mortgage, Flagstar Bank, Navy Federal, Penfed Credit Union, and Veterans United.

Types of VA Investment Loans

Before venturing into real estate, understanding the VA loan options available puts you in a better place to make an informed decision. These are the main types of VA loans:

Home Purchase Loans

This loan program makes it easy for veterans to purchase a residence at favorable interest rates without private mortgage insurance or putting down money.

Cash-Out Refinance Loans

Cash-out refinance loans convert a non-VA loan to a VA-backed loan. Additionally, a loan allows you to borrow a more significant amount against your home equity if you have an existing mortgage.

Native American Direct Loans (NADL)

NADL allows native American veterans to access financing with reduced interest rates for property purchase, construction, or renovation. 

Interest Rate Reduction Refinance Loan (IRRRLs)

If you have an active VA loan, you can take advantage of the IRRRLs program to refinance the loan with a lower interest rate.

Why Should You Get a VA Loan for An Investment Property?

Compared to conventional mortgages, there are many reasons why military members, veterans, or their spouses should choose VA loans:

Here are some of them:

Lower Interest Rates

VA loans are partially government-backed, which makes them less risky. As such, lenders offer them at lower rates below the usual mortgage rates, which makes them perfect if you have challenges borrowing. 

No down payment required

A minimum of a 3% down payment is a must in most mortgage financing, but with VA loans, there are fewer upfront costs with a zero down payment policy. 

No Private Mortgage Insurance (PMI)

Conventional loans attract 0.5 - 1% PMI of the loan amount paid monthly with the mortgage protects lenders from defaulters- this isn’t the case with VA loans. 

Home Equity Refinancing

VA loans offer up to 100% loans against home equity value, which allows borrowers to access better rates and cash-out refinance.

Friendly Borrowing Terms

With no down payment, PMI, higher debt-to-income ratio, and flexibility in credit score consideration, VA loans offer favorable terms compared to other mortgage loans. 

Gives Extra Benefits to Veterans with Disability

VA loans make homeownership stress-free for qualifying individuals. The benefits include:

-VA funding fee exemptions which save them thousands of dollars
-Access to up to $117,014 in Specially Adapted Housing (SAH) grants
-Up to $23,444 Special Home Adaptation (SHA) grant
-Varying property tax exemptions based on the extent of disability
-Disability compensation can count as income 

VA Loan Requirements for Investment Properties

Ideally, you must be a service member, veteran, or spouse to an active member missing in action, prisoner of war, or deceased veteran who died while serving to qualify for a VA loan. But, you must first apply for a Certificate of Eligibility (COE) that shows private lenders that you are eligible for VA loans, considering your duty status and service history. 

Additionally, the loan must be used solely for purchasing a primary residence. That means either you or your close family member must occupy the house for the loan to be approved. Before approval, you have to sign a binding document acknowledging the terms, so if you plan to rent it out, then the loan will not be approved. 

Conclusion

VA loans offer servicemen, ex-servicemen, and their spouses a friendly way to own a property. All you must do is meet the eligibility criteria, find a VA loan-approved lender, prepare your documentation, and submit your application. To improve your chances of success, ensure you have a robust financial profile and seek professional help.

There you have it, all the crucial details about VA loans for investment property; you can now identify an ideal property that meets the loan requirements, apply for a loan, and become a new homeowner.