Expert: Diann Tonnesen - 4/14/2009

Question
QUESTION: The house next door is up for sale. I would like to  purchase using my VA benefits. We are using an FHA loan on our current home. I was told by a lender that the VA would not allow us to get a loan because they would worry we would not occupy that home. They felt we would rent in and not move. We would rent ours and move into the home next door. Also told that if it appraises for less then our current loan they would notgive us the loan. Please advise.

ANSWER: Hi Frank,

I'm afraid I don't have any good news or ideas for you. Since both VA and FHA loans are for owner occupied homes only, unless the home next door is much larger, lenders will definitely feel like you are purchasing strictly it strictly as an investment property. It doesn't "make sense" for you to move to a home of equal or smaller size.

Also, if you are upside down on the loan to value of your current home, you would have to qualify for the complete payments on both homes WITHOUT any rental income being factored in. Too many people have already done the "buy and bail." They bought less expensive homes and then bailed on their old ones that were upside down. So now lenders won't loan at all on a second home unless the buyer can afford both payments on their current income.

I know this is NOT what you wanted to hear. But chances are not good that you will be able to purchase the home next to you unless it is larger and worth more than the home you are in now AND you can qualify for the payments on both homes. Please don't shoot the messenger!!

---------- FOLLOW-UP ----------

QUESTION: Thanks for the quick response. The house next door is of equal or greater value. I may be able to get a great deal on it because it is in probate. The reason we would move in it would be that we wouldn't have to pay any down hence keeping our bank money in the bank. Are you sure FHA has to be owner occupied?

ANSWER: FHA loans are for owner occupied and you need to occupy it for at least a year, though you can rent it out later. Is the house next door larger? That could be a valid reason for moving into it.

---------- FOLLOW-UP ----------

QUESTION: The house is the same size. My reason for moving in is that I would have to use my VA benefits. They would require owner occupancy. I would rather rent it out and not have to get off my recliner.I would also want to buy because I would be able to buy below market.

Answer
Unfortunately that is precisely the reason the lenders probably will not do a VA loan for you on this home. There is no valid (in their minds) reason for you to move next door to a home that is the same size other than for investment. They are SO strict now on loans!! A couple of years ago you could have probably done this, but now they are monitoring everything.