Using VA Loan to Buy a Second Home

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.

For veterans and active-duty military, VA home loans offer many advantages for purchasing a primary residence, such as no down payment or private mortgage insurance requirements. But what if you want to buy a vacation property or second home? Can you use a VA loan for that purpose?

Let’s explore the ins and outs of utilizing a VA mortgage to finance a second home purchase.

Overview of VA Loans

First, a quick primer on VA loans. These government-backed mortgages are available to eligible veterans, active-duty personnel, reservists and surviving spouses. Key benefits include:

No down payment required
No monthly mortgage insurance
Competitive interest rates
More flexible credit guidelines
Ability to finance closing costs into loan

The Department of Veterans Affairs guarantees a portion of VA loans, protecting lenders from losses. This allows them to offer more favorable terms.

Rules for VA Loan Occupancy

However, there are occupancy requirements on VA loans. These state that you must occupy the home as your primary residence within 60 days of closing.

Primary residence means where you spend most of your time and receive mail. It’s typically where you file taxes from and are registered to vote.

So if you already have an existing home financed with a VA loan, how can you utilize your VA benefits to buy a vacation property or second home? Let’s review some strategies.

Keep Existing Home as Second Home

If you currently have a home with an outstanding VA mortgage, you may keep it as a second house when you move. This converts your current primary residence into a secondary one.

You can then purchase another home with a new VA loan as your updated primary domicile. Lenders will consider both mortgage payments as part of your debt when qualifying you.

For example, if you’re PCSing to a new duty station, you can buy near base with a VA loan while holding onto your former home as a rental or vacation property.

Sell Existing Home First

Alternatively, you can sell your current home first. This restores your VA entitlement, allowing you to purchase another primary residence while keeping the second home.

When you sell a home financed with VA loan, the buyer may assume your mortgage. If they’re also a qualified veteran, their entitlement replaces yours, restoring your eligibility.

That opens the door to buying again with VA financing, while letting you keep the other property free and clear without a lien.

Convert Primary Residence to Second Home

What if you want to buy a vacation home now while keeping your current primary residence?

You can utilize a VA purchase loan for the second property first. However, you’d have to move into it and make it your primary residence initially.

After occupying it for at least a year, you can then convert it into a second home if you move back to your other house. This meets the VA’s occupancy rules.

Use Multifamily VA Loan Option

Another possibility is to purchase a two- to four-unit home with your VA loan as a primary residence. You’d live in one unit and rent the other(s).

The rental income can help you qualify by supplementing your regular income. Just make sure the property meets VA requirements.

This allows you to collect rental income from your “second home” without skirting any guidelines.

Understand VA Entitlement

When applying for multiple VA loans, you also need to grasp remaining entitlement – the amount the VA will pay the lender should you default.

All veterans have a basic entitlement of $36,000. This represents 25% of a $144,000 loan amount that the VA will guarantee.

You also get a bonus entitlement of 25% of any loan amount above $144,000. So on a $300,000 loan, the VA would guarantee the $36,000 basic plus 25% of $156,000 ($300k – $144k) = $39,000 more.

If you’ve already used some entitlement, calculate 25% of the county limit minus any already-used entitlement to determine what you have left. Lenders want total entitlement plus any down payment to equal 25% of the new loan amount.

Weigh Pros and Cons

Using a VA loan to buy a second home opens up possibilities like keeping a home in your preferred duty station. However, also consider:

Pros

No down payment on purchase
Can keep existing home
Potential rental income
Typically better rates than other loan types

Cons

Existing VA mortgage payments counted against you
Limited entitlement may require down payment
Not allowed for pure investment properties
Cannot buy fixer uppers requiring rehab only

Shop Around With Different Lenders

Because every VA lender has their own policies, it’s wise to shop around and compare options when pursuing multiple VA loans.

Rates and fees will vary too. Some key questions to ask:

How many outstanding VA loans will you allow?
What are income requirements when having multiple VAs?
Are there limits on total loan amounts across properties?
How do you calculate entitlement and down payments?

This allows you to find the most favorable loan terms and continuously use your VA benefits.

Consult a Knowledgeable Loan Officer

Technically utilizing a VA loan to buy a second house while keeping your existing one can get a bit complicated. It’s smart to consult an experienced VA loan officer when pursuing this path.

They can advise you on current entitlements, restoration processes, qualifying with multiple loans, and VA guidelines. This ensures you get the ideal loan structure.

Alternative Options to Explore

Beyond VA loans, also examine these alternatives for financing a second home:

Conventional 97 – 3% down payment option for primary residences
Cash-out refinance – Tap equity in current home if you have enough
HELOC – Uses home equity for funds; variable rates
Family loan – Borrow from relatives; no credit check

Crunch the numbers to see which allows you to buy the vacation or investment property you want within your budget and existing financial obligations.

Summary

Qualifying veterans and service members can use VA home loans to purchase secondary dwellings in certain situations. This includes keeping your current home as a second house, converting a primary into a secondary residence later, or utilizing multifamily options.

However, approval hinges on available entitlement, credit health, and income factors. Connect with a VA loan specialist to map out your goals and customized pathway to financing a second property.

You’re allowing another service member to assume your mortgage

Finally, VA loans are assumable loans, which means it’s possible for a buyer to take over the payments on your existing mortgage. Typically, this is done as a benefit to the buyer if your loan terms are much better than the ones that they’d receive on a new mortgage.

However, if you’re able to find another eligible service member to assume your loan, you could essentially swap out their entitlement for yours, leaving you with full entitlement benefits that you can use to purchase a new home.

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

Can a VA loan be used to buy a second home?

Yes, you technically can use a VA loan for a second home. 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.

How long do I have to wait to use my VA loan again?

With a VA loan, both short sale and foreclosure result in a loss of whatever entitlement you used to acquire the property. There is also typically a two-year waiting period before lenders will approve you for a new VA loan.

Can you use a bridge loan with a VA loan?

Your third option is to finance both the cost of the land and the construction of the home through other means, such as a short-term construction or bridge loan, and then refinance into a VA loan once the home is built.

How many times can you use VA benefits to buy a home?

There is no maximum or limit on how many times you can use a VA loan. You can use a VA loan once, twice, three times or seven. As long as you have remaining entitlement, you typically always have the option to obtain another VA loan. Veterans United has even worked with a handful of Veterans on their 9th VA loan.

Can a veteran buy a second home with no down payment?

If a veteran wants to use a VA loan to purchase a second primary property with no down payment, you typically have to have enough entitlement left over to cover 25% of the overall loan amount because that’s what the VA would guarantee on the first loan.

Can you have two VA home loans at once?

Yes, it is possible to have two VA home loans at once.If you have enough remaining entitlement, you can own two homes at once with a second VA loan .However, there are limitations.

Can I buy a second home with a VA loan?

If you already own one home with a VA loan, it is possible to purchase another home using a second VA loan, says mortgage coach Chuck Walden. If you own a house, you can g et another VA loan with your full entitlement guarantee if you’ve paid off the loan for the home you own or refinanced the mortgage to a non-VA loan.

Can I buy a house with a new VA loan?

If your plan is to buy a house with a new VA loan and sell the original property, you can pay off your first mortgage and regain your full entitlement to take out a second loan. The process gets a little trickier if you’re planning to keep your first home and use a VA loan on the second one.