Military life is so often spent on the move. That can make homeownership tricky for some military buyers, if not downright treacherous.
Having to PCS to Fort Riley three or four years after buying a home near Fort Campbell can put military families in a financial bind. Home values have plummeted in dozens of markets across the country. Military homeowners faced with relocation may owe far more on their house than it’s actually worth, known as being underwater. Homeowners either have to bring money to the closing table or consider more adverse options like a short sale or foreclosure.
But there is another option, although it’s by no means a guaranteed long-term solution, and that’s renting the old home after moving to the new location. Some military members may be able to count that rental income in order to qualify for a VA home loan in their new locale.
Multiple VA Loans
Just to be clear, not everyone is cut out to be a landlord. There are risks in renting out a home that’s still in your name to strangers or even people you know. Beyond that, not everyone should jump from one home to another.
With that said, one of the VA loan benefits allows qualified borrowers to reuse their VA loan entitlement, a complex topic we’ve covered multiple times. Part of your entitlement will be tied up in the old home until the mortgage is paid off. But if you’ve got some entitlement remaining, you can use it to purchase a second home with a VA loan.
So, yes, it’s possible to have two VA loans in play at the same time. The specifics can get confusing in a hurry, and there’s a minimum loan amount on these types of mortgages ($144,001). You can dig into this concept, known as second-tier entitlement, in our archives.
Lease and Deposit
But what about the rental income from your old property? Here’s the thing: You can’t just automatically count it. The general standard is that you need to have prior experience as a landlord, which you would prove by producing at least two years worth of tax returns. But that isn’t exactly feasible when you get new orders.
There is a workaround, at least here at Veterans United. When you’re ready to lock in a renter, get a signed lease covering at least 12 months from the date of closing and a copy of the security deposit check. That’s all it takes for us to use those rent payments to offset that mortgage payment.
It is important to note a distinction in a situation where you are converting your primary residence to a rental: if the mortgage payment for the home is $900 and you are receiving rental proceeds of $1200, you can generally only offset the mortgage payment and not count the additional income in your debt-to-income ratio. Once you have established two years worth of tax returns, any net income for the property can then be included as additional income in your debt-to-income ratio, before then and you will just be able to offset the mortgage payment.
If you are in a situation similar to this it is best to talk in more detail with a VA loan specialist about your specific situation.
Photo courtesy of danielmoyle