Is it possible to get a VA home loan to buy a second home? This is a question that comes up often, and the Department of Veterans Affairs addresses such issues in the VA Lenders’ Handbook, VA Pamphlet 26-7.
Chapter Two of the handbook addresses issues related to VA loan entitlement and reusing that entitlement to buy another property.
There are some basic issues you need to understand about VA mortgages that can help the rules in this section make sense, the first being that when you purchase a home using a VA mortgage, you are using some or all of your VA loan entitlement and you must be purchasing a home you intend to use as your primary residence.
VA Loan Entitlement Rules
Those who serve enough time in uniform are eligible to apply for VA home loan benefits. The VA agrees to back a portion of the mortgage loan (not the entire loan) for up to a basic entitlement amount ($36,000 in FY 2020, though the Department of Veterans Affairs may revise these numbers at any time if conditions warrant).
That does NOT mean the borrower is limited to a home loan of $36,000. That is simply the amount of VA loan entitlement available to the borrower as backed by the VA. Furthermore, for VA loans that are in excess of $144,000, there is an option for “bonus entitlement” which is essentially 25% of the loan.
Entitlement previously used for a VA home loan may be restored, but the borrower must request it. It is never automatic even if you have paid off the property in full. In general, restoration of previously used entitlement is possible in cases where:
- The property which secured the VA-guaranteed loan has been sold, and the loan has been paid in full
- An eligible veteran-transferee has agreed to assume the outstanding balance on a VA loan and substitute his or her entitlement for the same amount originally used on the loan
- The borrower has paid off a prior VA mortgage loan in full but has not yet sold the property (See below for more information on this scenario)
Why are we talking about VA loan entitlement in an article discussing the choices you have in purchasing a second home with a VA mortgage? Because borrowers who use their entitlement to buy a home use up that entitlement in whole or in part and that is a consideration for the lender when trying to approve your loan.
The first thing a borrower should do is to take stock of their current home loan–is it paid in full? Or close to being paid in full? Or do you still have a ways to go before your mortgage is fully amortized?
Also crucial–the nature of your loan. Is the current home financed with a VA mortgage? An FHA home loan? Conventional? This can make a difference in how you proceed with a new VA mortgage.
For Borrowers Who Have Never Used A VA Loan Before
Those who have never used their VA mortgage loan benefits before but own property from a different type of mortgage loan transaction should know that the main issue with a potential VA mortgage in these circumstances is the intent to occupy.
A borrower who has never used VA loan entitlement has the full amount of their VA mortgage available to use, but not for non-residential properties, commercial enterprises featuring transient occupancy or short-term rentals fewer than 30 days. The house you buy or build with a VA mortgage must be your primary residence within 60 days of closing in most cases.
The occupancy issue applies no matter what kind of circumstance you find yourself in with a VA loan to purchase property–you can’t buy a house you don’t intend to live in as your main home. That does not mean you can’t buy a multi-unit property and rent out the unused units, but the borrowers obligated on the mortgage are required to use the house they buy with a VA mortgage as their home.
Borrowers Who Have Used A VA Loan Previously
If you have used your VA home loan benefits before, you have used some or all of your VA loan entitlement. But this entitlement may be restored (see below) to allow you to buy or build another home you intend as your primary residence.
VA Loan Options
If you use only part of your VA mortgage entitlement on the first mortgage, you have remaining VA loan entitlement that can be used for the new loan. A borrower who chooses this path can choose to only use the remaining entitlement and the VA loan guaranty will reflect that partial entitlement.
Some borrowers avoid this option because they may be required to make a down payment in such cases. Others don’t mind the down payment as it can reduce the amount of the VA loan funding fee depending on the percentage of down payment made.
A One-Time Only Special Option
A more popular option for those who have purchased a home before using a VA mortgage is to take advantage of a one-time-only option to have that original entitlement restored for the new purchase. This is offered to those who have paid off their VA loan in full but have not sold the property.
The important thing to remember is that, as mentioned above, restoration of VA loan entitlement is not automatic and must be applied for in any case.
Those who choose this should know what the VA Lender’s Handbook, Chapter Two says:
“The veteran may obtain restoration of the entitlement used on the prior loan in order to purchase a different property, one time only.” Is there a catch? In a way, yes. Borrowers who want to have their VA loan entitlement restored after such a transaction will be required to sell BOTH properties purchased with VA mortgages in the past.
Things To Remember
No VA loan can be approved for timeshares, condo hotels, Airbnb operations, bed and breakfasts, or other commercial enterprises, even if the borrower lives on the premises. VA loans cannot be used for anything not classifiable as real estate and legally taxable as such. That includes RVs and houseboats.
VA loans are possible for multiple borrowers even if some of those borrowers are not military members or military spouses applying with their spouse.
However, in cases that do not involve a military member and spouse applying together, only the veteran’s portion of the home loan will be guaranteed by the VA and the VA loan entitlement used will be proportional to the military borrower’s share of the financial obligation.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News