How To Use A VA Loan To Buy A Second Home: A Comprehensive Guide

Purchasing a home is a major milestone and for many Americans, the VA loan program provides an accessible path to homeownership As a military service member or veteran, you’ve earned benefits like the option to get a mortgage with no down payment required through a VA-backed loan.

While the VA loan was designed to help veterans and active duty personnel buy their first home, you may be wondering if it’s possible to use it to purchase a second home The answer is yes, you can get a VA loan for a second home under certain conditions.

In this comprehensive guide, we’ll walk through everything you need to know about utilizing a VA loan for a second property. We’ll cover key details on VA loan guidelines, requirements and process. Read on for tips and strategies to make financing your next home smooth sailing.

Overview of Using A VA Loan For A Second Home

The VA home loan program aims to help eligible borrowers become homeowners It allows qualified applicants to receive a mortgage with favorable terms like no down payment and no private mortgage insurance required.

VA loans can be used more than once to purchase or refinance a home. However, there are limitations when utilizing them for a second property. Here are some key facts to understand upfront:

• You must intend to occupy the home as your primary residence. The VA has occupancy requirements for properties purchased with a VA-backed loan.

• Timing is important. Your current home would become your second home after closing on the new “primary” residence.

• Your VA entitlement comes into play. This refers to the amount of loan the VA will guarantee, which can impact your loan terms when buying a second home.

• There may be exceptions if you are on active duty military and need to relocate.

While not always straightforward, following VA requirements means you can qualify for financing on a second home. Getting up to speed on the guidelines is an important first step.

Meeting The VA Occupancy Requirements

One of the central requirements of the VA loan program is that you must intend to occupy the home as your primary residence. What exactly does this mean when it comes to purchasing a second property?

Essentially, you cannot obtain a VA-backed loan solely to buy a second home for vacation or investment purposes upfront. However, you can utilize a VA loan to buy a new primary residence, while keeping your current home as your “second home” after closing.

Here is how it works:

• You can apply for and close on financing for a new home using VA loan benefits. This property must be where you plan to live full-time once purchased.

• Within 60 days after closing, you need to move into the new house and occupy it as your primary residence.

• Your previous house then becomes your second home that you own in addition to your new primary home.

The key is that you cannot initially buy a property with a VA loan that you plan to use just as a second home or vacation home. The timing of designating your primary versus second home matters when adhering to VA requirements.

There are some exceptions to the occupancy timelines for certain groups like active duty personnel. For instance, if you get orders for a Permanent Change of Station (PCS) relocation, you may need to move quickly. Discuss your specific situation with a VA lender to understand options.

How Your VA Entitlement Comes Into Play

When applying for a VA loan, you will receive a Certificate of Eligibility (COE) that verifies your eligibility. This COE also specifies your available VA entitlement, which refers to the amount of your loan the VA can guarantee.

For example, with full VA entitlement you may have up to $647,200 that can be backed by the VA. When purchasing just one home, entitlement often isn’t a major factor. However, it becomes very important if applying for a VA loan for a second house.

Here are two key things to know about how VA entitlement works with a second home purchase:

• The combined loan amounts for your two mortgages cannot exceed your total entitlement. If you want to keep your current home and buy a second one, look closely at your remaining entitlement and new loan amount to avoid exceeding it.

• If you do exceed your entitlement, you may be required to make a downpayment on the portion not guaranteed by the VA. Aim to avoid this by carefully planning your two loan amounts in relation to your entitlement limit.

Discuss your specific entitlement details with a VA lender early in the process. This will allow you to get a clear picture of your options and loan terms for purchasing a second home.

Using A VA Loan When Relocating For Active Duty

Occupancy exceptions exist for some active duty service members related to Permanent Change of Station (PCS) relocations. For example:

• You purchase a home at your new duty station using a VA loan before you are able to sell the house at your previous station.

• You utilize a VA loan to buy a home at your next planned duty location in advance of your PCS orders and pending retirement.

In these cases, you may qualify for exceptions to the standard occupancy timelines. This allows active duty personnel to secure housing at their upcoming assigned location, even if they cannot move in right away.

Be sure to communicate your situation to prospective VA lenders to determine what flexibility may apply. With proper planning, you can leverage VA home loans to purchase a primary home despite needing to relocate quickly for military orders.

Using Your First Home As A Rental Property

Another common scenario when buying a second home with VA financing is keeping your current house to generate rental income instead of selling right away. This is permitted, as long as you follow program guidelines.

Here are some tips for utilizing a VA loan while holding on to your first home as a rental:

• Occupy the new home as your primary residence within 60 days of closing. This adheres to VA occupancy rules.

• Consider your entitlement when applying for the VA loan on the second home, so your two loan amounts combined do not exceed the limit.

• Be prepared to provide documentation to demonstrate you have property management experience, if asked by the lender.

• Have a plan for managing or hiring a property management company to handle renting out your first house.

With proper planning around occupancy, entitlement and documenting previous rental or property management experience, you can qualify for a VA loan while keeping your original home as a rental.

Restoring Your VA Entitlement

If you use your VA loan benefit to purchase multiple homes, you’ll want to pay close attention to your entitlement usage. The good news is that your VA entitlement can be restored once you pay off a VA loan, allowing you to reuse the benefit for another home purchase later.

Here are some tips for restoring entitlement after paying off your first VA mortgage:

• Contact the VA to formally notify them you paid off the loan and request your entitlement be restored.

• Update your Certificate of Eligibility (COE) to reflect your restored entitlement amount available for new loans.

• Consider timing of when to restore your benefit. For example, wait until you are closer to buying again versus right after paying off your initial VA loan.

Restoring VA entitlement gives you flexibility to tap into your earned benefits again, whether for a primary home or even rental property investment. This can allow military families to maximize the value of the VA loan program throughout their lifetime.

VA Loan Funding Fee For Second Home

Unless you are exempt, the VA funding fee will apply to any VA-backed loans you utilize. This fee helps fund the loan program and ranges from 0.5% to 3.6% of the total loan amount.

For a second home with a VA loan, you will pay this funding fee just like with your initial VA loan. The fee may be slightly lower if you make a downpayment to decrease the total loan amount. But otherwise, plan to budget for the VA funding fee when buying a second property.

Lenders will include the VA funding fee in your upfront closing costs on the second mortgage. This fee cannot be rolled into the loan or financed like other closing costs. The lender will require the fee paid at closing.

Finding The Right VA Loan Lender

As you navigate using a VA loan for a second home, it’s essential to find the right lender. Look for an experienced VA lender who can walk you through requirements, including:

• Guidance on occupancy rules and timing strategies.

• Expertise on how VA entitlement works with multiple loans.

• Ability to pre-qualify you based on your full financial picture including current home loan.

• Resources to help explain requirements and loan terms.

This will alleviate guesswork and ensure you get a VA home loan tailored to your situation. Be sure to ask prospective lenders about their specific experience with VA loans for second homes.

alternatives Options Beyond Using A VA Loan

While a VA loan is a great financing option, it is not the only route to buying a second home. Here are a few other choices to consider:

Conventional Loan – If you have sufficient income, savings and credit, you may qualify for a conventional mortgage for the second property. This avoids VA entitlement limits and occupancy rules.

Cash-Out Refinance – You may be able to tap equity in your current home through