Profile picture for TLBrown8

Dont want to miss the boat! Leverage home equity or free up my VA loan?

Morning all,

I'm starting to feel anxious and want to make a move before rates climb back up so i'd love some opinions.  Here are the facts:

Im a young investor with 3 properties under my belt:

Primary residence ~ 70k - 80k equity. Owe ~230 @ 3.75%
Single family investment property ~ 50 - 60k equity. Owe ~65 @ 5.6%
Condo Investment: upside down (owe 95k, worth 60k) Owe 95 @ 4.0%

Im on the fence about wether i should refinance my primary (a VA loan) and assume a likely .75 rate increase so that i can re-use the VA loan to move into a new primary residence and begin renting out my current primary residence.

OR

Try to use my equity (either through a HELOC on primary or cash out refi on investment property, or both) to buy a new investment property or properties.

Thanks all for the advice!

  • August 20 2013 - US
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Answers (5)

Profile picture for TLBrown8
Steady State,

Thanks for the feedback.

It brings a few questions to mind though.  Firstly, what am I on the razors edge of?  Debt to income?  If so I think ill be fine as the income from the rental properties combined with my regular income will get me where i need to go.

Secondly, you mentioned the closing costs/commissions eating into my equity.  Im not expecting to much of a problem there because i dont plan on selling.  My best case scenario is using the equity for a HELOC and if i need more I was considering a cashout refi on one of the investment properties.  In which case, yeah i would have to roll some closing back into the loan.

Finally,  the primary reason im looking to make a move is because interest rates are rising.  Im not necessarily interested in an ARM so the rising interest rates wiping me out are hopefully a non-issue.  Unless i'm missing your point.  Im not expecting my mortgage rates to go up after i make this move and at 4.5% they are still great.


In short, my understanding of you advise is that your advising caution due to the potential affects of of rising interest rates.  I dont feel this will be an issue for me because i have fixed rates.  Obviously the HELOC will move with the market but i would prioritize that debt if/when it rose above the rest.

Thanks again.
  • August 20 2013
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You are correct in your calculations on the entitlement. Before you start looking though, there are a few things that the underwriter is going to consider. You seem to be building a portfolio of properties, and there is nothing wrong with that. But, the VA loan is to be used for the purchase of a primary residence. If the home you are looking to purchase is smaller and in the same vicinity as your current home this could throw up some red flags to the underwriter that you are trying to purchase an investment property with a VA loan. Everything will depend on the details. 
  • August 20 2013
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Profile picture for SteadyState
Have someone who knows finance do an analysis for you. You are on the razors edge.
Your assets: $70K + $50K  = $120K [closing costs/commission will eat into your assets]
Your liabilities: $230K + $65K + $35K = $330K

Your interest payments per month are roughly $16500/year or $1375/month.
Depending on your income you could get wiped out as interest rates move upward. Remember people do not get loans to pay higher rents when your mortgage interest goes up; mortgage interest has already increased by 40% over 30 days and it appears rates will continue to rise.
  • August 20 2013
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Profile picture for TLBrown8
Great point and great question.  

According to the VA website my county has a Cap of $843,750.  The home I purchased with the VA loan cost ~225 and with the funding fee the loan amount was ~230.  

If my understanding of the 25% rule is correct, the VA will guarantee 25% of the remainder of my entitlement: 613,750x.25 = ~153k.

Does this mean that, in theory, I can get another VA loan for no more than 613k, provided i qualify? The home i'd be looking for would be between 200 - 250k

My intent would be to move out of my current home into something a little smaller.  
  • August 20 2013
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Are you sure that you need to free up the current VA loan to buy another home using VA? You can have more than one VA loan if you have enough entitlement remaining.
  • August 20 2013
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