How to Buy a Second Home With a VA Loan

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 step in life. Perhaps you want a vacation property, plan to move there when you retire, or need to relocate for work but don’t want to sell your current place. Whatever the reason, VA loans provide a great option for eligible borrowers to finance a second home purchase.

In this comprehensive guide we’ll walk through everything you need to know about getting a VA loan for a second property.

Can You Use a VA Loan for a Second Home?

Yes, you can use a VA loan to buy a second home However, there are a few limitations

You must intend to occupy the second home. VA loans require you live in the property as your primary residence.
You may need to use your bonus entitlement instead of full entitlement depending on your situation. We’ll explain more below.
There may be out-of-pocket costs if you don’t have full entitlement available.

As long as you follow VA guidelines, it is possible to buy and own two homes at the same time using VA loans.

When Can You Buy a Second Home with a VA Loan?

There are a few common scenarios where eligible borrowers can purchase a second property with VA financing:

Relocating for Work But Not Selling Current Home

Active duty service members who get orders to move to a new duty station can buy before selling their current home. You must show intent to occupy the new property as your primary residence within a reasonable timeframe.

Buying a Future Retirement Home

If you plan to retire within 12 months, you can buy a home in your future retirement location with a VA loan before moving there. This exception allows you to establish residency and get situated ahead of your retirement date.

Converting a Primary Residence into a Second Home

Veterans can convert their current VA-funded primary home into a second home or rental property when they buy a new place to live. You must occupy the new property as your primary residence.

As you can see, VA guidelines accommodate common scenarios where borrowers need to buy before selling or transitioning their living situation.

Using VA Entitlement for a Second Home Loan

VA entitlement refers to the amount the VA will guarantee on your loan in case of default. This guarantee enables you to get a VA loan with no down payment.

Here’s how entitlement works when buying a second home with VA financing:

If your first VA loan is paid off, you can restore your full entitlement to reuse on a new VA loan.
If you still have an existing VA loan balance, you will likely need to use bonus entitlement for the second loan.
Bonus entitlement covers 25% of the loan amount above $144,000. So your guarantee will be lower than full entitlement.
With partial bonus entitlement, you may need a down payment to cover the gap between your available guarantee and 25% of the new loan amount.

Always confirm your precise entitlement status with the VA before moving forward with a second VA loan.

Key Credit and Income Rules for a Second VA Mortgage

When applying for a second VA-backed mortgage, you must meet all the usual credit, income, and eligibility requirements. Here are some key factors lenders evaluate:

Your total debt-to-income ratio – Lenders look at your total monthly obligations (including both mortgage payments) vs. total monthly income. Most require your DTI to be below 41%.
Credit scores and history – VA has minimum credit score requirements that vary by lender. Many look for at least a 620 FICO score. Your overall history, delinquencies, and judgments will be reviewed.
Residual income – Especially important for higher cost areas. Lenders calculate your remaining income after debts/expenses to ensure you can afford both properties.
Job history and stability – Underwriters verify your employment history and income to ensure reliable repayment ability.

Meeting VA second loan requirements is very doable if you have a strong financial profile. Be sure to consult with lenders early in the process to confirm your eligibility and options.

Steps to Buy a Second Home with a VA Mortgage

If you’ve determined a second VA loan fits your homebuying needs, here are some key steps to take:

1. Check your VA entitlement status – Confirm your remaining entitlement and whether restoration is possible if you have an existing VA loan open.

2. Get pre-approved – Work with a lender to get a pre-approval letter for maximum purchase power.

3. Make an offer – Once you find the right home, make an offer and negotiate the purchase contract. Remember to make your offer contingent on securing financing.

4. Finalize loan approval – Provide all required documentation for underwriting. Ensure you meet credit, income, and down payment requirements.

5. Close on time – Finalize the transaction and take ownership by the closing date outlined in the purchase agreement!

The purchase process follows traditional procedures. Just be sure to clarify upfront that you plan to use VA loan financing for a second home.

Tips for Managing Two Mortgage Payments

If you plan to own two properties long-term, it’s vital to budget for both mortgage payments plus taxes, insurance, maintenance, and other ownership costs.

Here are some tips to make dual homeownership more affordable:

Lower your rate – Refinance your current VA loan to lower the monthly payment if possible.
Make extra payments – Paying extra principal on your first mortgage helps pay it down faster.
Rent out extra space – If allowed by your loan terms and locality, renting out a mother-in-law suite or basement apartment can offset costs.
Include all costs when budgeting – Don’t forget property taxes, insurance, HOA fees, utilities, upkeep, etc.
Build your emergency fund – A robust savings provides a buffer in case of unexpected expenses or income disruption.
Explore downsizing – As properties become affordable, consider selling the higher cost home.

With prudent budgeting and financial planning, you can make owning two homes work!

Alternatives to Using VA Financing for a Second Home

Although VA loans offer advantages like no down payment, they aren’t the only option for buying a second property. Some alternatives to consider:

Conventional Loan – If you have equity, a low LTV conventional loan may offer better rates/fees than VA financing on your second place.

Cash-Out Refinance – Tap equity in your current home via a cash-out VA refi or conventional loan. Use the funds to purchase the next property.

Home Equity Loan – Extract cash from your current home’s equity to put toward the second home via a home equity loan or line of credit.

Portfolio Loan – Ask lenders about portfolio mortgage programs that may offer more flexible lending options.

All Cash Purchase – Ideal if you have cash savings. Eliminates monthly mortgage payments on the second property.

Crunching the numbers for your situation will reveal the optimal loan solution.

The Bottom Line

Qualified veterans and service members can absolutely purchase a second home using their VA loan benefit. While this path has limitations and requirements, it opens up homebuying possibilities like buying before selling a current home.

Thoroughly explore the loan process, credit/income qualifications, entitlement rules, and down payment options before moving forward. Consulting trusted VA lenders for guidance is key. With proper planning, you can successfully leverage VA financing to own two properties.

Can you use a VA loan to buy a vacation home?

You’re generally not allowed to use a VA loan to buy a vacation home, but again, there are ways to get around the imposed stipulations.

For example, if you can afford to repay two mortgages simultaneously, you can use partial entitlement to purchase a new home and transition your old home into a vacation destination. In this instance, though, you’ll still be required to move into your new home within 60 days.

Fortunately, there are a few exceptions to the 60-day occupancy requirement that many VA borrowers face:

Military spouse or dependent child: If you’re on active duty, your military spouse or dependent child can satisfy the occupancy requirement by moving into the property ahead of you.
Deployment: Whenever you’re deployed from your permanent duty station, you’re considered on a temporary duty status, which satisfies the occupancy requirement.
Retirement: If you’re planning on retiring soon, you’ll have up to a year to purchase your new home and move in.
Renovations: Delays in occupancy are also permitted if your new home needs substantial improvements or repairs.

Now that you understand how to use a VA second home loan, it’s important to ensure that you’re clear on how VA entitlement works. At its core, VA entitlement is the dollar amount that the U.S. Department of Veterans Affairs (VA) will pay your lender if you default on the mortgage.

Here’s what you need to know about the different types of entitlement:

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

Does VA allow 2nd home purchase?

The Bottom Line: Yes, You Can Buy Two Homes With A VA Loan As such, buying a home with a VA loan for the purpose of making it a second home or investment property isn’t allowed, but you can convert the property after you’ve lived there. You can also make rental income by living in one unit and renting out the others.

Can I get a VA home loan if I already have one?

Bottom line. It is possible to take advantage of the benefits of VA loans multiple times throughout your life. Depending on the amount of entitlement you have, you could even have multiple homes with VA loans at the same time.

Can I use a VA loan on a vacation home?

You’re generally not allowed to use a VA loan to buy a vacation home, but again, there are ways to get around the imposed stipulations. For example, if you can afford to repay two mortgages simultaneously, you can use partial entitlement to purchase a new home and transition your old home into a vacation destination.

What is the VA funding fee for a second home?

The VA funding fee is a one-time fee paid to the Department of Veterans Affairs, and it supports the VA home loan program. Veterans who put down less than 5% on their home purchase will pay 2.15% of the loan amount when buying a home for the first time, and they’ll pay a funding fee of 3.3% on subsequent loans.

How long does the VA require you to occupy the second home?

The buyer needs to be occupying the house for more than 6 months in a year. VA also lays down the guideline that the owner needs to occupy the second house and make it their primary residence within a reasonable time frame. Reasonable timeframe is a variable factor and for various buyers, this time frame is different.

Can you get a second VA loan?

The VA’s second-tier entitlement allows you to take out another VA loan to buy a second home. This is common for active duty military members who get PCS orders but want to keep their current home. Some choose to use their current home as a rental property when they move to their new base.

What is the maximum amount the VA will pay if you default on your loan?

The VA loan entitlement refers to the maximum dollar amount that the VA will pay to your mortgage lender if you go into mortgage default, or fail to repay your loan. With VA loans, there are two forms of entitlement: basic entitlement and bonus entitlement. The basic entitlement is $36,000, or 25% of $144,000.

What is the VA loan entitlement?