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 next step for many homeowners Having a vacation property or rental income property allows you to diversify your assets If you’re eligible for VA home loans, you may be wondering if you can use your VA loan benefit to purchase a second property. The answer is yes, you generally can buy a second home with a VA loan if you follow the program rules.
In this article we’ll cover everything you need to know about using a VA loan for a second home purchase including
- VA loan occupancy rules
- Tips for buying a second home with a VA loan
- VA entitlement and how it works with a second loan
- Funding fees for second VA loans
- Potential pitfalls and mistakes to avoid
VA Loan Occupancy Rules For Second Homes
VA loans are intended for primary residences – the home you live in most of the time. So there are occupancy rules you must follow when using a VA loan for a second property.
Here are the key occupancy guidelines:
- You must intend to occupy the second home as your new primary residence. VA loans cannot be used solely for investment properties or vacation homes.
- You typically need to move into the second property within 60 days of closing. There are some exceptions for active duty service members.
- You can convert the second property to a rental or vacation home later if you move, as long as you followed occupancy rules initially.
So in short, yes you can buy a second house with a VA loan as long as you plan to live there first.
Tips for Buying a Second Home With a VA Loan
If you want to buy a second property while keeping your first, here are some tips:
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If your first VA loan is paid off, consider requesting a one-time restoration of your full VA entitlement. This allows you to get the full VA loan benefit on your second home.
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If your first loan isn’t paid off, you’ll need to use your remaining entitlement for the second loan. Make sure you have enough entitlement left to meet your lender’s requirements, often 25% of the loan amount.
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Prepare to pay closing costs on the second loan. You can roll them into the loan amount, but cannot use the VA funding fee exemption for second loans.
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Consider refinancing your first VA loan to lower the payment before taking on a second mortgage. This can help you qualify for both loans more easily.
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Know your DTI ratios with both mortgage payments included before applying for the second loan. Stay below 41% front-end DTI to qualify.
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Work with a lender experienced in second VA loans. Nuances with entitlement mean an expert guide is key.
How VA Entitlement Works With Second Loans
VA entitlement refers to the amount the VA guarantees on a loan in case of default. For first-time VA loans, entitlement covers 25% of the loan amount. With second VA loans, it gets more complicated.
If your first VA loan is paid off, you can get a one-time restoration of your full entitlement. This allows you to get a second VA loan with the same 0% down, no limit perks.
If your first loan isn’t paid off, you’ll likely need to use second-tier “bonus” entitlement. In that case:
- Any previously used entitlement is deducted from the 25% guarantee.
- If you don’t have enough entitlement left for 25% coverage, you may need a downpayment.
- Loan limits can also impact the guarantee calculation.
Always confirm your precise entitlement status before applying for a second VA loan.
VA Funding Fees Apply on Second Loans
The VA funding fee helps cover program costs and applies to most VA loans. For second VA loans, here are key facts on the fee:
- Ranges from 0.5% to 3.3% of the loan amount
- Lower with a downpayment, higher with no downpayment
- Paid at closing or rolled into the loan
- No VA funding fee exemption for second loans like first ones
Run the numbers in advance to factor this cost into your second home purchase plan.
What to Avoid When Buying a Second Home VA Loan
While getting a second home VA loan is possible, here are some key mistakes to steer clear of:
- Don’t try to only use the property as a rental or vacation home. Follow occupancy rules.
- Don’t assume you can get a second VA loan with no entitlement left from the first.
- Don’t forget to request restoration of entitlement if your first VA loan is paid off.
- Don’t skip confirming your precise entitlement amount before applying.
- Don’t neglect to include both mortgage payments in your DTI ratio calculations.
As long as you follow the rules and tips above, buying a second home with a VA loan can help you grow your real estate portfolio. Consult a lender to go over your specific situation and get personalized guidance.
Can you use a VA loan for a second home?
Yes, you technically can use a VA loan for a second home. However, the process isn’t as simple as you might think. You’ll have to meet certain eligibility criteria to make it work.
This is because VA loans are meant to help eligible service members purchase a primary residence or home they intend to live in full time. 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.
As a result, it’s not so easy to use a VA loan to buy a vacation home that’s only occupied on a part-time basis or an investment property that you don’t intend to occupy at all. Still, if you play your cards right, there are a few ways to work around the occupancy requirements and get a second VA home loan.
Let’s take a look at a few situations where it may be possible to get a second VA loan:
You can try house hacking
The easiest way to use a VA loan to buy a rental property is by house hacking. In this case, house hacking would involve using a VA loan to buy a multifamily property with up to four units and living in one of the units as your primary residence. You would then be able to rent out the other units and collect rental income.
VA Loan Secrets: What Veterans MUST Know about Using Multiple VA Loans (updated 2023)
FAQ
Does VA allow 2nd home purchase?
How long do you have to wait to get a 2nd VA loan?
How does the VA know if it’s your primary residence?
How long do I have to occupy my VA loan home?
What is a second home in a VA loan?
In lending and in life, the main definition of second home is a vacation home that serves as a getaway from the everyday hustle and bustle. Because VA loans are intended to help people purchase or refinance a primary residence, you will have to follow the VA loan occupancy requirements.
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 I get a second VA loan if I already have a loan?
If you already have an existing VA loan, the amount the VA will guarantee for a second VA loan is limited. This is known as having partial entitlement. Partial entitlement typically occurs when you use a VA loan for a second home and decide to carry two mortgages at once.
Can I buy a second home with remaining VA entitlement?
If you do plan to buy a second home with remaining VA entitlement. It’s very important to make sure you understand how your remaining entitlement and local conforming loan limits interact. If you have any doubt, you can always speak to us. If you’re ready to get started, you can apply online or give us a call at (833) 326-6018.