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.
Buying a second home can be an exciting next step for many homeowners. With interest rates still near historic lows, it’s an ideal time to consider investing in a vacation property or upgrading to a larger home as your family grows.
But can you use a VA loan to finance a second property? Let’s break down the details.
Overview of VA Loans
First, a quick refresher on VA loans. These mortgages are backed by the Department of Veterans Affairs and offered to eligible military members and veterans.
Key benefits include
- No down payment required
- No private mortgage insurance (PMI)
- Flexible credit guidelines
- Lower interest rates than conventional loans
VA loans can only be used to finance a primary residence – not an investment property or vacation home, This is an important restriction to note,
Can I Use a VA Loan for a Second Home?
The short answer is yes, you can use a VA loan for a second home, with some limitations.
Here are the key possibilities:
Scenario 1: Trade Up to a New Primary Residence
If you want to purchase a new primary residence, you can easily do so with a VA loan by:
- Selling your current home first
- Paying off the existing VA loan
- Restoring your VA entitlement
- Getting approved for a new VA loan on the second property
This is the simplest way to use your VA benefit again. As long as you sell the first home and pay off that VA loan, you can purchase a new place with 0% down and reuse your full entitlement.
Scenario 2: Turn First Home into Rental Property
What if you want to keep your current place as a rental but also buy a new primary residence? This approach is trickier but possible
You’ll need to tap into your second-tier VA entitlement, also called bonus entitlement. Here are the key points:
- You can only borrow a portion of the total loan amount without a down payment
- The amount depends on your remaining VA entitlement
- You may need to make a down payment for any portion above your available entitlement
- You must live in the new home as your primary residence for at least 12 months
Careful planning is required if you want to rent out your first VA-financed home. Speak to a lender to strategize based on your specific situation.
Scenario 3: Buy a Second Home / Vacation Property
The VA does not allow borrowers to purchase a second home or vacation property with a VA loan. These loans are strictly for primary residences.
If you want to buy a vacation property or second home, you’ll need to consider a conventional loan with a down payment.
Key Factors When Getting a Second VA Loan
If you’re eligible for a second VA loan, keep these guidelines in mind:
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Occupancy Rules: You must plan to move into the new home and live there for at least 12 months.
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Entitlement: Your remaining VA entitlement determines if you need a down payment. Work with a lender to review your options.
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Loan Limits: The maximum loan amount you qualify for may be restricted depending on available entitlement.
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Funding Fee: You’ll owe a VA funding fee on the new loan, even if you paid one before. Certain exemptions may apply.
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Credit Health: Your credit score, income, and debts still factor into approval, just like on your first VA loan.
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Eligibility: You must still meet basic VA loan requirements related to service history, certificate of eligibility, etc.
As long as you understand the guidelines, using a VA loan again can be a great way to move up to a new home or transition your first home into an investment property. Just be sure to consult a knowledgeable lender to structure the best solution for your situation.
Options If You Can’t Get a Second VA Loan
For various reasons, a second VA loan may not be feasible for some borrowers. Here are a few alternative options to consider:
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Conventional Loan: If you have equity, you may qualify for a low down payment conventional loan like an FHA loan or conventional 97.
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Cash-Out Refinance: You may be able to tap equity in your current VA loan home through a cash-out refinance.
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Down Payment Assistance: Explore down payment assistance programs offered in your state or locality. These can help reduce the required down payment.
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Sell First Home: Selling your first home and restoring full VA entitlement may give you the best terms on a new place.
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Wait to Buy: If your financial profile needs improvement, take time to boost your credit, pay down debts, or save more for a down payment on a conventional loan.
Even if a second VA loan doesn’t work out, you still have options to buy again in the future.
Frequently Asked Questions
Below are answers to some common questions about getting a second VA mortgage:
Can I use a VA loan to buy a second home or vacation home?
No, VA loans can only be used to purchase a primary residence where you intend to live for at least 12 months.
What credit score do I need for a second VA loan?
There is no set minimum credit score, but most lenders want to see at least a 620 FICO score or higher to approve a second VA loan. The lower your score, the harder qualifying becomes.
How soon can I get another VA loan after my first one?
There is no set waiting period. As soon as you restore your VA entitlement, either by selling the home or paying off the loan, you can apply for another VA loan.
Can I rent out my current VA home and buy another primary residence?
Yes, through second-tier entitlement, but you’ll likely need a down payment on the new loan if you don’t have full entitlement left. And you must plan to live in the new place for at least 12 months.
What are VA loan limits when buying a second home?
For second-tier entitlement, lenders will only approve a no down payment loan up to 4 times your available entitlement. Loan limits still apply on any portion above that.
The Bottom Line
Purchasing a second home is a big financial move. Make sure you understand all the costs, risks, and alternatives before deciding if a second VA loan is right for your situation. But for eligible borrowers, it can be a strategic way to invest in real estate while taking advantage of the VA program’s beneficial terms.
Reach out to a knowledgeable VA lender to explore your options. They can help you evaluate your VA benefits, home equity, financial profile, and long-term plans to put together the optimal home financing strategy as you move forward.
Can you use a VA loan for a second home?
Yes, you technically can use a VA loan for a second home. However, the process isn’t as simple as you might think. You’ll have to meet certain eligibility criteria to make it work.
This is because VA loans are meant to help eligible service members purchase a primary residence or home they intend to live in full time. VA mortgages even come with specific occupancy requirements to help ensure that the homes they guarantee are inhabited for most of the year. Specifically, you’ll have 60 days — in most cases — to move into your new property and start living in it full time.
As a result, it’s not so easy to use a VA loan to buy a vacation home that’s only occupied on a part-time basis or an investment property that you don’t intend to occupy at all. Still, if you play your cards right, there are a few ways to work around the occupancy requirements and get a second VA home loan.
Let’s take a look at a few situations where it may be possible to get a second VA loan:
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