One of the biggest misunderstandings with VA loans is that homeowners think VA loan entitlement can only be used once. This misunderstanding comes from the requirement that the home being financed with a VA loan must be a primary residence. Even though this is a true requirement, people don’t realize that they aren’t required to use up 100 percent of their eligibility on their first home. As long as the second house is also defined as a primary residence, it’s possible to finance more than one house with VA loans. In fact, the VA has no rules for how many times you can use your entitlement. Using a VA loan for second home is definitely possible under several circumstances as long as you meet certain requirements.
After one VA loan is paid off, the borrower’s entitlement is restored, and they can use the full amount of entitlement towards their next loan. It’s important to know that members of the military who qualify for a VA loan are allowed 2 different types of entitlement: basic and bonus. The basic gives you $36,000 of coverage for homes costing equal to or less than $144,000. The bonus gives you $144,000 of coverage for homes costing between that amount and the conforming limit (usually $417,000). If you use up one on your first home, you can then use up the second on your second home. However, it is possible to exhaust all of your entitlement on one home if it is higher-priced. In that case, you would not be able to purchase another home with a VA loan until the first was paid in full.
Buying a Second Home with a VA Loan
One requirement that comes with VA loan on second home is that you must prove the second house provides you with a net tangible benefit. Remember that a big priority with VA loans is ensuring the borrower is always benefiting from the loan and any changes to it. A net tangible benefit might come from moving closer to your work or buying a second home for a spouse who lives out of the state. These situations may be temporary. (Think about these scenarios if you were trying to sell your first home but needed the second home quicker than you could put your first home up for sale.) But know that VA home loans can only be used for homes that are occupied by the owner. In order for a home to qualify as a primary residence, an owner needs to live in it at least 6 months and 1 day each year.
Along with the primary residence rule, there is another occupancy rule to be aware of; buyers must occupy the home within 60 days of the loan closing. This 2-month period is considered by the VA to be a reasonable amount of time. However, there are a few scenarios under which the buyer can move in after the 60 days. These include the following:
- Military retirement within the next 12 months
- Making necessary property repairs in order to meet MPRs
- If your circumstance doesn’t match one of these VA situations, you can submit a request to have your unusual circumstance approved.
Intermittent occupancy can also be approved as long as this is due to employment. If the buyer intends to use the home as a vacation home, the VA will not approve this. The buyer also needs to make the VA lender aware of their move-in date and reasoning for moving in then.
Paid Mortgage in Full?
Like I mentioned above, your full VA entitlement is restored when you pay off a previous VA loan. For example, let’s say you’ve paid off your current VA loan but haven’t sold the house yet. You are still able to buy a second home with full VA eligibility. However, you cannot do so if your home was foreclosed on or if you have to surrender it in a deed in lieu of foreclosure. In order to get full entitlement restored, you do need to apply for it through the VA.
Qualifying for a Second Home Loan
In order to qualify for a 2nd VA home loan, you and your home will need to meet the same requirements as for the first loan. Take a look at just a few:
- Certificate of Eligibility (COE)
- Many lenders require 620 credit score or higher (Low VA Rates does not require this) but the VA simply lists “suitable credit”
- 41 percent DTI or lower
- Sufficient income
Get Started on Purchasing a Second Home Now
No matter your home loan needs, we at Low VA Rates can help. Whether you need a second home, first home, or a refinance, give us a call at 866-569-8272 to get started on a loan application.
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It’s my understanding that even if you pay off your original VA loan, you still have to apply for full restoration of your benefits…they’re not automatically restored. Also you’re second tier VA loan has to be for at least $144K..!? Am I correct?
Both items are correct. Restoration is very easy. You just need a copy of the closing disclosure from the Sale.