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I Used My VA Loan to Buy a Property That’s Earning Passive Income

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  • As an Air Force veteran, I have access to VA loans, which require no down payment.
  • I’ve used the VA loan twice to buy homes for myself. When I moved, I turned my first home into a rental.
  • I hope to someday use the VA loan to buy a multifamily property I can live in and rent out.

I’ve spent a lot of time investigating the benefits afforded to service members. As a naturally thrifty person, joining the Air Force unlocked a wide variety of tools for my financial success. This has included the Post-9/11 GI Bill, a high-interest savings account, and VA-provided health insurance. But one of the biggest benefits I’ve experienced has been the VA loans which I’ve used multiple times.

Most members of the military have heard of the VA loan. Federally insured, these loans will allow eligible service members to put 0% down on a home loan without needing to pay any mortgage insurance premiums.

And although the interest rates for these loans tend to be a little higher than standard mortgages, a low credit score requirement and no need for a down payment has helped make homeownership affordable for many.

You can get more than one VA loan

Perhaps the best part of the VA loans entitlement is that, unlike many of the benefits given to service members, your eligibility doesn’t end when your services does. This means that veterans can enjoy the same loan options as their active duty counterparts — and the loan can be used multiple times.

Now, when I say multiple times, I don’t mean that you can get a loan, pay it off, and then get another VA loan. There is a pretty commonly held misconception that you can only ever hold one VA loan at a time, but the truth is that you have a specific amount of money against which you can borrow. If your first home doesn’t exceed that amount? You can get another loan.

This doesn’t mean you can go out willy-nilly and buy up every property you see. Most of the time, you’ll need to have a good reason for purchasing another home.

A lot of this has to do with the fact that any home you purchase with a VA loan is meant to be a primary residence. So if you already have a house, but you’d like a second one just 50 miles away, odds are banks will consider this a vacation property and won’t approve you for another loan.

I’ve used my VA loan entitlement twice so far

In my case, I first purchased a property in August 2017 after accepting a job offer in Washington, DC. A few years later, I went back to school, changed careers, and decided to move back home to California. Because I hadn’t used all of my entitlement — and because I was making a huge move across the country — I was able to qualify for a second VA loan.

The way VA loan entitlement is calculated is a bit tricky, and the government’s own websites aren’t especially intuitive. But, essentially, eligible service members receive two tiers of loan entitlement.

The basic tier includes $36,000 worth of backing from the VA. Because the VA only guarantees 25% of your loan at any given time, this essentially gives you a purchasing power of $144,000.

However, there is a second tier of entitlement available to members in the sum of $125,800 (meaning you can borrow up to four times that amount). Add these two together and you get a purchasing power of $647,200. (Be aware that these loan limits apply only when you’re looking for a second VA loan. You have no loan limit on your first VA loan.)

My first condo cost $330,000 and my second was $400,000. Because the total of these two loans was over that $647,200, I did have to put a down payment on my second property, but if you’re not using the full entitlement you’d still need just 0% down.

I applied for and was approved for my second VA loan in June 2019. Happily, since it had been more than a year since I’d purchased my original property, I was able to rent it out without issue.

I’m earning passive income on my first property

Nowadays I’m back to calling California home (when I’m not traveling, at least). Together, my two VA loans have been a huge boon. Not only am I able to earn extra income on my original condo, skipping out on mortgage insurance for my second property saves me hundreds of dollars each month.

Although I’m no longer in the Air Force, I’ll always be grateful for the opportunities it’s afforded me. My next goal? Sell my single-unit condo and settle into a four-unit residence using — you guessed it — my VA loan.

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