It’s possible to use a VA loan for a second home, but this process isn’t as easy as simply finding a lender and applying for another mortgage. There are quite a few different rules you’ll need to follow to ensure that you qualify. With that in mind, here’s a look at what you need to know before applying for a VA second home loan.
The VA home loan program provides eligible veterans and active duty service members with mortgage financing options that typically offer lower interest rates and require no down payment. But can you use a VA loan to purchase a second home? The short answer is yes, but there are some key factors to consider.
VA Loan Occupancy Requirements
The main hurdle with using a VA loan for a second property is the occupancy requirement. VA loans are intended to help veterans and service members purchase a primary residence. When you apply for a VA mortgage, you have to state that the home will be your principal residence that you’ll occupy most of the time.
After closing, you typically have 60 days to move into the property. There are some exceptions, like if you’re deployed, renovating the home, or retiring soon. But in most cases, the home needs to become your primary residence soon after purchase.
So you can’t simply go out and buy a second house as a vacation property with a VA loan upfront. However there are still paths to get VA financing on a second home if you plan carefully.
Transition an Existing Home into a Second Property
The most straightforward approach is to use a VA loan to buy a new primary residence Then you can transition your current home into your second home or vacation property
As long as you move into the new house within 60 days and make it your primary residence, this method works within the VA guidelines Just be aware that you’ll be responsible for both mortgage payments.
Pay Off the Original VA Loan First
Another option is to fully pay off your initial VA mortgage first before applying for a second VA loan. Once the original loan is paid in full, you can request restoration of your VA entitlement by filing VA Form 26-1880.
This restores your full eligibility so you can qualify for a second VA guaranteed loan, even if you still own the first home free and clear. It’s essentially a one-time use benefit to get a second VA loan after you’ve paid off the first.
Have Another Borrower Assume the Loan
VA loans are assumable, meaning another eligible borrower can take over your mortgage. If you find a veteran or service member to assume your existing VA loan, you free up your entitlement to get a new VA-backed purchase loan.
So through this process, you swap VA entitlements and walk away with restored benefits to buy a second home with VA financing.
Purchase Multifamily Property via House Hacking
An increasingly popular tactic is “house hacking” where you buy a 2-4 unit multifamily property with a VA loan as your primary residence. You live in one unit and rent the others out, enabling you to collect rental income.
Since it’s your principal residence, this approach doesn’t violate VA occupancy guidelines. The rental income can then help offset the mortgage payment on the first property as you save up for a second home.
Meet Stricter Underwriting Standards
If you want to keep your original home and rent it out after buying another with a VA loan, you can. But you’ll face tougher underwriting scrutiny.
The VA will want to see you have experience managing rental properties. They may also require six months of mortgage reserves and a larger down payment on the second home.
You’ll also need to supply existing lease agreements and have 25% of expected rent deducted as a vacancy factor. This compensates for any periods where you can’t find tenants.
Consider VA Jumbo Loans
VA loans come with maximum conforming loan limits based on geographic location, similar to conventional loans backed by Fannie Mae and Freddie Mac. High cost areas like San Francisco and New York City have VA limits over $1 million.
But even if you exceed those limits, VA jumbo loans are available through private lenders. The main difference is that you’ll need a down payment above the entitlement amount and pay private mortgage insurance.
Still, VA jumbo loans can be an option if you want financing above the regular VA limits for a higher priced second home.
Shop Around for Low VA Rates
While VA loans come with general eligibility standards, lending terms and rates can vary significantly between lenders. So it pays to shop around and compare offers if you’re getting a second VA mortgage.
Look for lenders that advertise discounted VA rates and low origination fees. Online lenders tend to offer very competitive pricing on VA loans.
Watch Out for VA Entitlement
When applying for multiple VA loans, pay close attention to your available entitlement – the amount of your loan the VA will guarantee. For 2022, the max entitlement is $647,200 for most counties.
If you’ve already used your full entitlement on the first loan, you’ll have limited guaranty left over on the second mortgage. And you may need to make a down payment on the portion above your remaining entitlement.
Always confirm your current entitlement when pursuing a second VA loan to avoid surprises.
Consider Down Payment Assistance Programs
If you have limited remaining VA entitlement or don’t want to make a down payment, look into down payment assistance programs. Many states and cities offer grants, low interest second loans, or deferred payment loans to cover your down payment on a second home.
Down payment help is available through government agencies like state housing finance authorities, as well as private non-profit organizations. These programs can make it easier to buy a second property when your VA entitlement has been exhausted.
Weigh the Costs and Benefits
Before getting a VA loan on a second property, carefully consider the financial implications. You’ll be responsible for both mortgage payments every month, in addition to property taxes, insurance, maintenance and utilities on two homes.
Crunch the numbers to make sure it’s affordable and look at pros and cons like:
Pros
- Build home equity faster with dual payments
- Rent out the original property for added income
- Diversify your assets across two properties
Cons
- Higher monthly expenses to cover both mortgages
- Challenging to manage two homes far apart
- Additional property taxes and home insurance costs
Analyze both the costs and benefits to decide if using your VA benefits for a second home makes sense for your situation.
Talk to a VA Specialist
Navigating VA guidelines across two home purchases can get confusing. Consult a VA mortgage specialist who can explain the loan process and availability in detail.
Look for certified VA lenders that regularly handle VA home loans. They can guide you on current entitlement rules, documentation required, and loan amount eligibility.
A VA mortgage pro can also help you structure the transactions appropriately and time them properly to end up with two VA-financed properties. They’ll know the most efficient way to tap your benefits across both homes.
The Bottom Line
Yes, you can use a VA-backed loan to buy a second house – but there are limitations and hoops to jump through. Work with a knowledgeable VA lender, pay attention to occupancy and entitlements, and run the numbers to see if it truly makes sense for your personal situation.
With the right planning and advice, a second home via VA financing is possible. But tread carefully and consult experts to avoid headaches. With smart preparation, you can successfully unlock your VA benefits to own two properties.
You can transition your old home into a rental property
As mentioned above, it’s also possible to eventually transition your old home into an investment property and use your remaining entitlement to purchase a new primary residence. However, if you decide to go this route, you’ll have to meet some fairly strict underwriting guidelines, which include:
- Demonstrating prior experience managing rental units or having a background in property management
- Having at least six months of cash reserves on hand
- Sharing any lease agreements that are already in place
- Deducting 25% of your rental income from the qualifying amount as a vacancy factor
You can afford to manage two mortgage payments at the same time
If you still owe money on your mortgage and want to keep your existing property, it’s possible to transition your old home into a vacation home and use another VA loan to purchase a new primary residence.
In this case, you’ll need enough income to qualify to cover both mortgages at the same time. You’ll also be limited to partial entitlement (more on that later) on your new loan, which means you should be prepared to make a down payment.
VA Loan Secrets: What Veterans MUST Know about Using Multiple VA Loans (updated 2023)
FAQ
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