Posted on Jul 5, 2016
CPT Aaron Kletzing
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I'm looking at buying a classic two flat home. I would live on he first floor and basement levels, and would rent out the second floor to a tenant. There is actually already a tenant on the second floor paying $2K/mo in rent. My questions are: 1) how does having a paying tenant impact the interest rate of a VA loan? 2) how does this impact the amount you can borrow with a VA loan? Thanks for feedback from anyone here on RP.
Posted in these groups: Valoancaptain VA Loan1 HomePersonal finance tips Personal Finance
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SPC Anthony C
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Hi CPT Aaron,
I bought a triplex in Santa Barbara county using the VA home loan about two years ago. There was no impact to me on the interest rate of my loan. I am now working placing this property on a conventional loan, and moving my VA loan to a second property. Unfortunatelly, the VA does not count the income from multiple units towards your qualification income unless you have one or more years experience managing a multi unit property. This was the case in 2019, so the rules in 2020 could have changed. If you have the rental experience, your total loan qualification will increase dramatically if you include the rents from the new property as well.
I just noticed you asked this question in 2016, hopefully this answer is helpful to another veteran.
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1LT William Clardy
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Out of curiosity, what are the benefits you see from using a VA loan to finance the purchase, as opposed to obtaining a standard, fixed-rate mortgage?
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1LT William Clardy
1LT William Clardy
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With interest rates nudging below 4 percent, Capt (Join to see), there is a valid question as to how much lower a VA loan can get. Quite honestly, I'm in the middle of financing a home purchase through a genuinely local bank, paying a slightly higher interest rate but also enjoying a much-abbreviated mortgage application process (and enjoying working with a banker who's actually focused on investing in the local community).
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1LT William Clardy
1LT William Clardy
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On the flip side, TSgt Joshua Duplin, one of the benefits of making a large down payment is that you don't need to pay for mortgage insurance. Banks still equate the ability to make a down payment with an ability to repay the loan, and there is a strong statistical basis for that stereotype.

The traditional rules of thumb still make sense, if you're trying to honestly assess how affordable a particular loan is. The default rates go up the closer you get to a zero down payment, just as they go up quickly the farther you go past a purchase price of three times your annual pre-tax income.
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1LT William Clardy
1LT William Clardy
6 y
Perhaps my view is skewed from everybody else's, TSgt Joshua Duplin, but buying down the APR with points never seemed to add up when I did the math -- borrowing less always seemed to have a bigger impact on the overall interest cost.

You do have a very valid point about explicitly preserving a cash reserve (or something easily liquidated into cash) to fund those contingency expenses which experience (and Cousin Murphy) says are coming.

I should add that I have never used my VA loan benefit. When I was buying houses in California, the VA limit fell woefully short of funding the purchase price of anything that I was looking at. Now that I'm back in a buying mode here in Maine, the loan limit is not an issue, but I really don't see the VA benefit being worth the hassle -- especially not compared to the convenience of the branch manager having my mortgage application from 2 purchase offers back in his desk drawer and revising it as needed to match the details of the property I'm currently asking to borrow money for. Call me old-fashioned, but I really, really like doing business with people face-to-face and actually shaking hands to close a deal. I would also add that the bank I'm doing business limits its mortgage business to local properties, and they came through the housing-bubble/mortgage-default crisis in good financial shape because their loans were to people with faces for properties that they could assess for themselves. It's a quaint way of doing business, but it works and it's a lot more pleasant than the FHA/VA/big-bank way of doing things.
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1LT William Clardy
1LT William Clardy
6 y
By my estimate, TSgt Joshua Duplin, dropping a full percentage point from the APR will knock about $55 off a monthly payment on a $100,000 30-year mortgage. On the other hand, even at a 3-percent APR, every $10,000 you don't borrow reduces the payment by about $42 per month.
"You say 'tomato', I say 'tomato'..."
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