We have come across a great number of Veterans in the NY area that would love to buy a two family home so they can live in one unit and rent the other for income to help with their mortgage payment. However, in most but not all cases, the two family home will cost you more than the traditional one family home. Therefore, most Veterans in order to qualify for a VA Mortgage, large enough to buy a two family home, must rely on the potential income that the rental income will generate.
However, here’s the issue – several years ago the VA home loan guidelines were changed; as a result a potential homeowner can no longer use the projected rental income of the rentable unit of a two family home to help qualify for a VA home loan. The exception is if the home buyer has been a landlord and has reported rental income on tax returns for a minimum of a one-year period.
Since most Veterans wanting to buy a two family home are first time home buyers this is an impossible guideline to meet. That being said, there is a solution!
The FHA program does allow you to use the rental Income without any landlord experience. Therefore, if one was to initially purchase a two family home using a traditional FHA loan and make the mortgage payments on time for the 1st year, while renting out the second unit during this 1st year, you can then file your taxes having included the rental income on your tax return.
You have now been a landlord for the one-year period and can use your VA home loan benefits to refinance your FHA loan into a VA home loan as you now meet the landlord experience guidelines. Since the FHA Loan has no prepayment penalty, when you refinance your FHA loan into a VA Loan, you will have eliminated the mortgage insurance payment thereby giving you all the advantages of having a VA home loan.