Today I had a buyer come to me with a relatively simple question that soon turned into a downright conundrum of sorts. The buyer currently owned their home and already had a lease agreement executed ready for tenants to move in as soon as they closed on their new home. They had already been to a local bank and were in the middle of the loan process when the loan officer called to tell them that the VA no longer allowed a borrower to use the rental income from a previously occupied residence to offset the payment on the house they were vacating.
Fortunately for me, I had recently been faced with a similar situation and knew exactly how to document the file. So now you are probably wondering where the conundrum is…..right? Well, anytime I am faced with a somewhat peculiar loan scenario I like to double check my handbooks to make sure that my killer loan officer instincts are correct. I emailed my number one investor and lo and behold, I got shot down! Even though I had just read in the VA handbook that it was allowable, here my Account Executive is telling me it isn’t. To make a long story short I found out that it was simply an investor overlay (I’ll get to those in a future post). After a few more emails I finally found a couple of investors that will buy the loan.
Here’s the skinny: If you are a veteran and you are going to keep your current residence while purchasing a new home you are allowed to use the anticipated rent to offset the mortgage payment on the home you are vacating. The rent cannot be used as effective income so only an amount equal to the vacating mortgage payment can be used. Some investors will require 3 months reserves on both the current residence and the new home. Obviously, if the home you are vacating is currently held by a VA mortgage you will have to pay it off or refinance it with a different loan type as the VA doesn’t allow multiple open loans on one certificate of eligibility. To properly document the file the buyer will need to provide an executed copy of the lease agreement.
If you have any questions regarding VA loans please contact us.
If you are thinking about purchasing a new home, don’t wait until you find the perfect home to get prequalified! Make sure your credit is healthy and find out how much you can qualify for before you find the home of your dreams. This helps insure that you not only choose a home in the right price range, but help avoid falling in love with a home that you can’t afford!
