Homeownership is a dream for most Americans, most of which have concerns whether they can afford it or whether they can qualify for a home loan on the property. Since most conventional home loans require that applicants have a credit score in the high 600’s and make a 20% down payment on a property.
Thankfully, Government guaranteed home loans exist, and they offer excellent benefits and more lenient eligibility requirements. This is because they are guaranteed by the Government, which protects lenders from loss if the borrower ends up defaulting on their home loans. Using these loans in combination with real estate investment strategies could result in extra income for the borrower.
Government Guaranteed Home Loans
Since their creation, <a href=”https://www.fedhomeloan.org/government-home-loans/”>Government loans</a> have helped millions of Americans achieve the dream of homeownership. With more lenient eligibility standards and desirable benefits. They are a great alternative to conventional home loans.
To be eligible for these loans, the applicant must make sure that they meet all <a href=”https://www.vahomeloancenters.org/va-home-loan-eligibility/”>eligibility requirements</a> for VA loans. These cover things like military service, property, income, to credit score requirements.
Eligibility for an FHA loan is also quite lenient, with requirements being a steady employment history, a valid social security number, and lawful residency in the country. The mortgage payment must also be less than 31% of the applicant’s gross income, with monthly debt payments encompassing less than 43% of monthly income.
Both VA and FHA home loans can also be used in combination with real estate investment strategies like BRRRR and House Hacking to allow the borrower to make passive income from their property.
What are House Hacking and the BRRRR Investment Method?
Both House Hacking and BRRRR are investment strategies that require that the borrower rent out their property to pay for their mortgage and expenses. Most investors like using multi-family complexes for these investment strategies since they allow for more tenants and an extra level of protection if a tenant decides to move out. Since instead of losing 100% of rental income, the property owner will lose, in the case of a fourplex, 25% of their rental income.
House hacking can also be used in combination with both VA and FHA home loans. These are called VA-hack and FHA-hack, respectively. They combine the benefits from taking out these Government loans with the potential return on investment from doing a house hack.
The most significant difference between BRRRR and house hacking is the rehabbing of the property to increase potential profits as much as possible. Both FHA and VA offer loans that can help in the financing of the rehab process. These loans are named FHA 203k loans and VA Rehab loans.
FHA 203k loans can cover the cost of upgrades and repairs, including removing health hazards, the replacement of malfunctioning appliances, the changing of carpets, and new paint. The loan can also fund the addition of another room, essentially turning a triplex into a fourplex. However, the property cannot exceed four units.
VA Rehab loans, on the other hand, can finance the repairs and upgrades to doors, gutters, windows, and roofing. Also, VA Rehab loans can fund the changing of the property’s insulation and the removal of mold and lead paint.
Both FHA 203k and VA Rehab loans can also be used to finance the updating and upgrading of a property to meet the needs of disabled residents.
In addition to opening the door to people hoping to become homeowners, Government guaranteed home loans can also help the borrower achieve financial independence. They can also give borrowers valuable land-lording experience and is a great starting point to eventually become a real estate investor.
Phil Georgiades is the CLS for FedHome Loan Centers, a brokerage specializing in first-time buyer home loans. Phil has over 22 years of professional experience working in real estate. If you would like to learn more about programs available to you or apply for a home loan,