How To Use A VA Loan For A Second Home

Purchasing a home is one of the biggest financial decisions you can make in your life. For veterans and active-duty military personnel VA loans offer key advantages like no down payment and relaxed credit requirements that make buying a home more accessible. But what if you already have a VA loan and now want to buy a second property? Is it possible to use a VA loan for a second home?

The short answer is yes, you can use a VA loan for a second home purchase under certain conditions VA loans are intended for primary residences, but there are some scenarios where you can buy a second property while still following the rules

In this comprehensive guide, we’ll walk through everything you need to know about using a VA loan for a second home. We’ll cover:

• Requirements for occupancy and intent to occupy
• What happens if you sell your first home or keep it
• How remaining VA entitlement affects your second loan
• Special cases like converting to a rental property
• Restoring your full VA entitlement
• Tips for vacation homes and VA construction loans

Understanding the specifics will ensure you can fully utilize your VA loan benefits whether you’re buying your first home or your fifth. Let’s dive in!

VA Loan Occupancy and Intent to Occupy Rules

The most important thing to understand is that VA loans require you to use the home as your primary residence. The property needs to be where you spend most of your time living.

As a result, you can’t use a VA loan just to purchase a pure investment property or a vacation home you plan to visit occasionally. The VA wants to help veterans buy homes to actually live in.

However, the VA does make allowances if your circumstances change down the road. For example, you could:

• Purchase a home with a VA loan and live there for at least 12 months.
• Get orders to move to a new duty station.
• Rent out the first home instead of selling it.

In this case, you’d be allowed to use your VA benefits to buy the new primary residence even though you still own the previous home.

The key is that when you first use the VA loan, you have to state your intent to occupy the home and actually move in within 60 days of closing. Determining occupancy comes down to where you spend most of your time, pay taxes, are registered to vote, and have your permanent address.

Conversion to a rental or second home after living in the property is fine, but stating that intent upfront could get your VA loan denied.

What Happens If You Sell the Home From Your First VA Loan

If you’ve paid off your original VA loan by selling the home, you have full restoration of your VA entitlement. This makes things simple if you want to buy another primary residence.

Here’s the process:

• Sell the home purchased with your first VA loan. This pays off the loan.
• Request an updated Certificate of Eligibility from the VA to restore your full entitlement.
• Apply for a new VA loan with 0% down just like the first time!

Selling the home is key because it terminates your previous loan obligation. As long as you didn’t go through foreclosure, you regain the full use of your VA loan benefit, including the 25% funding fee exemption for disabled veterans.

One thing to note is that VA loans are assumable. This means whoever buys the home from you has the option to take over your loan instead of you paying it off. In this case, your VA entitlement would remain connected to the property with the new owner.

What If You Keep Your First Home?

Things get a bit more complicated if you want to keep your original VA loan property and buy a new primary residence. This is where remaining VA entitlement comes into play.

When you get a VA loan, the government guarantees the lender up to 25% of the loan amount in case you were to default. For your first VA loan on a primary residence, you usually have your full entitlement available, so the 25% funding is covered.

But if you want to buy again while keeping the first home, you can only use your remaining entitlement on the new purchase. This affects your down payment requirements.

For example, let’s say you have $50,000 of leftover entitlement after your first VA loan. On your new $300,000 home, the 25% VA protection would be $75,000 based on the full loan amount. But since you only have $50,000 of entitlement left, most lenders would require you to pay at least $25,000 as a down payment on the second home.

The math can get complex and factors in loan limits in your county, but the bottom line is you may need a down payment if you don’t have full entitlement remaining with an existing VA loan.

Using a VA Loan for a Rental Property

As mentioned earlier, VA loans must be used to purchase a primary residence you occupy. However, you’re allowed to convert the home into an investment rental after living there for a reasonable period of time, usually 12 months.

If you do convert to a rental, be sure to consult your lender. They may ask for copies of your lease agreements and appraise the property based on the rental income. Lenders want to verify the rent covers the monthly mortgage payment.

Under most lender policies, 75% of rental income is counted toward your debt-to-income ratio for qualifying for the new loan.

Restoring Your Full VA Entitlement

If you paid off your first VA loan by selling the home or through regular principal paydown over time, you can get your full entitlement restored with a one-time use.

The restoration process includes:

• Paying off the VA loan fully through sale or payments.
• Waiting for the loan to show as terminated in VA systems.
• Filling out VA Form 26-1880 to request an updated Certificate of Eligibility.
• Applying for a new VA loan with your full restoration!

This one-time use lets you buy another home for 0% down with no restrictions. Make sure you go through the steps to confirm full entitlement is reflected on your documentation.

Tips for Using a VA Loan for a Vacation Home

VA loans are solely intended for primary residences, not second homes or vacation properties. However, there are couple cases where you can still use VA financing to end up with a vacation home if your circumstances change.

For example:

• Purchase a home with a VA loan and live there for 1 year.
• Relocate to a new primary residence using your remaining VA entitlement.
• Convert the first home into a vacation property for personal use.

Another option is buying the second home right before retirement if you know you’ll be moving there permanently within 12 months. These scenarios let you work within the VA guidelines.

The key is that you have to state intent to occupy at the time of purchase. Vacation homes can’t be the immediate purpose, but they can become one later if you relocate.

Can You Get a VA Construction Loan?

Yes, VA construction loans are possible and can be a great choice if you want to build a custom home as your next residence.

The process is similar to a regular VA loan, but the funds are dispersed in phases as the home is built. The builder must be VA approved and you’ll need to allow extra time for the construction process when estimating your move-in timeline.

As with any VA loan, you must intend to occupy the home as your primary residence once construction is complete. Doing major renovations on an existing VA loan property is also an option.

The Bottom Line

While VA loans are designed for primary residences, there are definitely options for using your VA benefits on a second home if your life circumstances evolve.

The key factors are:

• Stating intent to occupy when you first obtain the VA loan
• Following occupancy rules during the initial period
• Managing the impact on your entitlement and down payment requirements
• Converting to a rental or vacation home later on if you move

Discuss your specific situation with a lender to make sure you maximize your VA loan advantage whether buying your first, second, or fifth home!