When it comes to helping Veterans secure a home loan, Realtors often find themselves navigating a unique set of rules that apply to VA loans. One of these little-known yet powerful advantages involves rental income, particularly when a Veteran decides to keep their existing primary residence as a rental property while purchasing a new home. This often-overlooked VA rental rule could be the difference between qualifying or not for a new home, making it an essential talking point for Realtors and a critical insight for VA buyers.
Understanding the Vacancy Factor
In most conventional loan products, when a borrower wants to convert their current home into a rental property and purchase a new residence, only a portion of the anticipated rental income from the existing home can be counted towards the borrower’s income. This reduction is due to what's known as the "vacancy factor," which accounts for potential rental vacancies and associated risks. Typically, lenders will only consider 75% of the rental income, leaving 25% out of the debt-to-income (DTI) equation. This vacancy factor can sometimes make it more challenging for borrowers to qualify for a new home loan.
The VA Loan Advantage: Counting 100% of Rental Income
Here's where the VA loan stands out. Unlike conventional loan products, VA loans allow underwriters to count 100% of the anticipated rental income from the existing home against the mortgage payment. This can significantly boost a Veteran's qualifying income, making it easier for them to secure a new home loan while retaining their current property as a rental. This full inclusion of rental income can be a game-changer, especially in markets where housing affordability is tight, and every dollar of qualifying income counts.
No Lease Agreement Required: Another VA Loan Perk
Another substantial advantage of the VA loan is its flexibility regarding documentation. Most conventional loan programs require an actual lease agreement in place before counting rental income toward the buyer's DTI ratio. However, the VA loan program offers more flexibility. Veterans can use a rental estimate from reputable online rental websites or even a real estate broker's opinion of what the home could rent for. This relaxed requirement simplifies the process and can save time, particularly when the Veteran is still in the process of securing a tenant.
Why This Matters for Realtors and VA Buyers
For Realtors, this little-known VA rental rule is a powerful tool when working with Veterans. It not only showcases the distinct advantages of VA loans but also positions you as a knowledgeable and valuable resource for your clients. By understanding and explaining this benefit, you can help Veterans feel more confident about retaining their existing homes as rentals while pursuing their dream of purchasing a new property.
For VA buyers, this insight could make all the difference in your home-buying journey. Knowing that you can count 100% of your rental income without needing a signed lease agreement can open up new possibilities and provide greater flexibility in your financial planning.
If you're a Veteran or a Realtor working with Veterans and want to learn more about this and other VA loan tips, feel free to reach out to me, Frank Garay, at 707-695-6313 or email me at fgaray@smprate.com. I'm here to help you navigate the unique benefits of VA loans and ensure you make the most of your home-buying experience.
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