If you want to use a VA loan for second home, there are a few factors you will need to consider. To be honest, there are more than a few factors. On the plus side, it is possible to get a second home with a VA loan guarantee. On the minus side, it’s not as straightforward as you might hope. That’s because the VA loan program is designed primarily for one thing: to help active military service members and veterans afford a home. And it’s very, very good at that – one of the best government programs for housing. If you want it to do two things, such as purchasing multiple houses, it is less clear. That’s Ok if you don’t mind doing a little homework (pun intended).
If you are careful, you can buy two homes using your VA benefits. It’s not illegal, but you do need to acknowledge and abide by the VA’s policies. That means understanding rules about occupancy, entitlement, and eligibility. And have a calculator ready because you might need to do some math.
Getting a VA home loan for your first home is a great way for eligible veterans and servicemembers to buy a house with no down payment But what happens when you want to buy another home and keep your first one? Is it possible to get a second VA mortgage?
The short answer is yes! However, there are some limitations and rules you need to understand before pursuing a second VA home loan. In this comprehensive guide we’ll explain everything you need to know about getting a second mortgage with your VA benefits.
Can You Get a Second VA Mortgage?
The VA home loan program allows eligible borrowers to get multiple VA loans over their lifetime. So if you have an existing VA mortgage, you can absolutely get a second VA loan for a new home purchase.
However there are occupancy and entitlement requirements you must meet to qualify for a second VA mortgage
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Occupancy: The home purchased with a VA loan must be your primary residence where you live most of the year. Within 60 days of closing, you need to move into the new property secured by the VA loan.
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Entitlement: Your VA entitlement refers to the amount the VA can guarantee if you default on the loan. For a second VA loan with no down payment, you typically need enough entitlement left over to cover 25% of the total loan amount.
As long as you meet these two requirements, you can use your VA benefits to buy another home while still keeping your first VA mortgage.
When Can You Get a Second VA Mortgage?
There are a few different scenarios where veterans take out another VA loan while retaining their first VA-backed home:
Military Relocation
Active duty servicemembers who have to relocate to a new duty station can keep their first home and take out another VA loan for their new primary residence near base. This allows them flexibility when they PCS and may have difficulty selling quickly.
Converting to Rental Property
Some veterans plan to rent out their first VA home after moving. They can use their benefits again to buy the new house in the new location. After living there for at least 12 months, they can convert the first home into a rental property.
Buying Vacation Home
If veterans sell their first VA home, they can restore their entitlement and get another VA loan for a second home or vacation property. As long as they plan to personally use the second home for part of the year, this is allowed.
Purchasing Larger Home
Growing families may use their VA loan eligibility to upgrade into a larger home or move to a new neighborhood. This allows them to keep their first home as a rental property or sell it later when the timing makes sense.
As you can see, there are many reasons veterans may need to take out multiple VA mortgages over time.
How Does Entitlement Work for Second VA Loans?
Your VA entitlement is the amount the Department of Veterans Affairs will pay your lender if you default on the loan. This entitlement can be reused for multiple VA loans, but there are limitations when using it for a second mortgage:
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Basic entitlement – Every veteran has a basic entitlement of $36,000. This will cover 25% of a VA loan up to $144,000.
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Bonus entitlement – You also get a bonus entitlement which is 25% of any loan amount above $144,000.
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Used entitlement – Any entitlement you’ve already used on a previous VA loan is subtracted from your total available entitlement.
For a second VA loan with no down payment, you typically need enough entitlement left over to cover 25% of the new loan amount. Otherwise, you may have to make a down payment.
Let’s look at an example:
- Your first VA loan was $200,000 so you used $50,000 of entitlement
- You have $36,000 in basic entitlement left
- You want to buy a new home for $300,000
- 25% of $300,000 is $75,000
- Since you only have $36,000 entitlement left, you’ll need to pay at least $39,000 as a down payment on the second loan
As you can see, entitlement can impact your ability to get a second VA mortgage with no down payment. Connect with a VA lender to determine your exact entitlement and options.
What Are the Rates and Fees for a Second VA Loan?
Your interest rate on a second VA mortgage will depend on current market rates, your credit score, debt-to-income ratio, and other personal finance factors. Rates are typically very competitive with other loan programs.
You will also owe the VA funding fee when you close the second loan. This upfront fee helps provide the VA home loan program at no cost to taxpayers. The funding fee ranges from 0.5% to 3.3% of the total loan amount.
Finally, you’ll pay the same closing costs as with any mortgage – title fees, appraisal fee, origination charges, etc. VA loans do not have private mortgage insurance or prepayment penalties.
Overall, the rates and fees for a second VA home loan are very reasonable compared to other options.
Can You Convert a VA Loan to a Rental Property?
It is possible to convert a home purchased with a VA loan into a rental property if you meet certain criteria:
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You must occupy the home as your primary residence for at least 12 months after closing on the VA mortgage.
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You need to qualify for the second VA loan while still making payments on the first mortgage. Lenders will want to see you can handle both housing expenses.
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It’s recommended you notify your servicer when you move out and intend to rent the property. There may be some additional paperwork.
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Converting to a rental too quickly or not occupying as stated can be considered mortgage fraud. Don’t risk your VA benefits.
While the VA has rules against using their loans for investment properties, responsible homeowners can convert them down the road. Just make sure you plan ahead and consult your lender.
Tips for Getting a Second VA Mortgage
If you want to take advantage of your VA benefits again for a second home, keep these tips in mind:
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Check your remaining entitlement well before starting the process. This will help you plan for any potential down payment.
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Work with a VA-approved lender who is familiar with second use guidelines and entitlement calculations.
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Be transparent about your plans and timeline for occupying the home. Don’t take on more house than you can reasonably afford.
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If converting your first home to a rental, start setting aside reserves for vacancies, repairs, etc. Make sure the rental income makes sense.
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Remember to request restoration of your entitlement after selling your first VA home. This resets your full eligibility.
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Document any life changes like growing family size or medical needs if requesting an exception to standard VA occupancy policies.
With proper planning and advice, veterans can absolutely use their VA home loan perks for a second time. Enjoy your new home!
Frequently Asked Questions about Second VA Mortgages
Here are answers to some common questions about getting second VA home loans:
Can I get a second VA loan before paying off my first?
Yes, this is allowed but you will need to have enough remaining entitlement to cover 25% of the new loan amount. You also must qualify with both mortgage payments.
What if I don’t have enough entitlement for a second VA loan?
If you don’t have enough entitlement, you will have to make a down payment to cover the difference between your available entitlement and 25% of the new loan amount.
Do I need to restore my entitlement to get another VA loan?
If you still have entitlement available and meet the second use requirements, you can get another VA loan without restoring entitlement. But if you’ve used all of your entitlement, you will need to restore it by selling the first home.
Can I get a VA cash-out refinance on my second VA loan?
Yes, cash-out and streamline refinancing options are available on second VA loans. You just need to meet the standard refi requirements.
What if I lost my home in foreclosure? Can I get another VA loan?
You can get another VA loan after foreclosure but there is a waiting period – usually 2 years. You will also need to repay the VA for any claim they paid out to make the lender whole.
COE and Your Entitlement
In a straightforward VA Loan guarantee, your entitlement only comes into play if you are buying a property with a significant price tag. But when you start looking at a VA loan for second home, and start juggling multiple properties and multiple loans, your entitlement comes into play fairly quickly.
The VA Certificate of Eligibility is the one of the first things you will encounter when you start investigating the VA home loan benefit. The COE is exactly what it sounds like: it verifies to the VA Loan processors that you meet eligibility requirements for the program.
The COE, once you get it, also lists your VA benefits entitlement, meaning it lists how much of a loan (or loans) they will insure. For example, if you have the full VA entitlement– $647,000 – your mortgage loan can’t be over that amount to stay under your entitlement. If you are looking to get two VA loans, the two added together can’t exceed your entitlement. In this case, you could have a first VA loan for $300,000 and then a second VA loan for $346,000.
One warning: If you get your COE, or your lender gets it for you, it might say that your entitlement is $36,000. The VA insures 25% of the total of your mortgage, so you need to multiply that amount by four. That guarantee will cover a $144,000 mortgage loan. If that seems low, it is. Most single family homes in the U.S. cost quite a bit more than that (the median price for a home in the United States is about $374,000).
The VA knew it needed to change the basic total entitlement to keep up with the market. It made some adjustments to its policies and regulations and came up with a secondary entitlement that covered home loans up to $647,000. If the entitlement looks a little funky on your COE, it’s because they are working with two entitlements – basic and secondary.
If you hit the upper limit of your remaining entitlement, which is likely with two mortgages and two properties, all is not lost. You will, however, need to make a down payment if you go over. One of the primary reasons to pursue a VA loan guarantee is to avoid the down payment, so pay close attention to how much of your entitlement you have used, how much you have left, and how much the next home will cost.
You might have heard, or read about, VA loan limits. Some folks say they don’t exist. Others say there are loan limits. It’s confusing. The loan limits most websites talk about are really just the entitlement limits, i.e. what the VA will insure for your loan. In practice, the VA doesn’t limit you to the size of the loan you can get, just the amount it will insure.
So if you have a home that’s worth 300,000 and you need to get another home, say in Hawaii, and that one tops $700,000, you’re probably going to be going over your entitlement because full entitlements cover about $647,000. What does that mean? It means the VA still insures part of your mortgage, but not all of it. In that case, you will need to pay a down payment and private mortgage insurance on the remainder of the total loan amount, i.e. everything that is over your entitlement.
The VA does not limit how much you can borrow, only what it will insure. Real loan limits come from banks or mortgage lenders, and they will be very specific about how much you can borrow from them based on your income and your ability to pay them back.
For most people, having a second home may seem like an extravagance, but for active duty military it is reality they may wrestle with repeatedly. Like few other professions, military personnel move around a lot, going from base to base, often for only a few years. These change of station situations can result in a soldier owning one home, needing to find another home on another base before they can find a buyer for their previous home.
The way the VA loan program is set up, this can be facilitated. You can have two mortgages under the VA loan guarantee at the same time. You just need to keep an eye on your entitlement to make sure you don’t go over. Or, if you do go over, understand that there will be some extra costs involved that you don’t typically pay when you are working with the VA.
Timing is Everything: Occupancy Requirement
Occupancy is the first hurdle. The U.S. Department of Veterans Affairs requires that when you apply for a VA loan guarantee, it must be for the residence that will be your primary home. In terms of timing, buying a second property with a VA loan really means that you are buying a primary residence, leaving your previous home as your “second home.” Let’s say that again: your old house is now your second house and your new house is the one you will live in, i.e. your primary house. This is completely legit, but you can see where timing is critical. If you plan on using your benefit for a second VA loan guarantee, you can’t buy a second home and not live in it.
This is a good place to pause and remind ourselves that the VA guarantees the loan but doesn’t actually lend the money. That comes from VA-approved lenders or private mortgage brokers. The VA’s insurance, however, is a very strong card in your hand. It tells the lender that the VA is backing your loan, and lenders take that kind of insurance seriously. They don’t typically like risk, and you are a lot less risky with the VA on your side.
The whole idea of using the VA loan for second home is contingent on your ability to make the mortgage payments on both properties.
In terms of occupancy, you need to move into the new house within 60 days. The occupancy rules have some exceptions because sometimes, due to deployments or retirements, the new owners can’t move in right away or may be away from the residence. These exceptions are:
- Retirement – If you want to buy a home somewhere well in advance of your actual retirement day, you have up to a year to move in.
- Fixer Upper – If the house needs repairs or renovations that will take longer than 60 days, you can get an exception.
- Spouses – If your spouse moves into the home while you are deployed, that counts.
- Work Away from Home – If your job takes you away from home, you can ask for an intermittent occupancy exception.
- Unusual Circumstances – Talk to your loan officer about other obstacles to your occupancy.