VA Loan for a Second Home: Reusing Your VA Loan Benefit
If you're a Veteran and have utilized your VA home loan benefit in the past, you may wonder if it's possible to reuse this benefit to buy a second VA home. The good news is that the Department of Veterans Affairs allows eligible Veterans to reuse their VA home loan benefit multiple times under certain circumstances.
This means you have the opportunity to take advantage of the benefits and advantages offered by a VA loan once again. By understanding the guidelines and requirements, you can properly utilize the VA home loan benefit for a second home.
It is possible to reuse your VA home loan benefit and buy a second home. However, this is typically only the case if you have paid off the previous loan or sold the home. Your VA loan entitlement is restored for additional use on another home purchase if you have no outstanding loan balance and meet all other VA loan requirements.
In the context of VA loans, the term "second home" is typically used to refer to a vacation home or investment property. VA loans require you to live in the property you buy as your primary residence, so using a VA loan to buy a second home for use as a vacation home or investment property is not permitted.
When buying a second property with a VA loan, you'll need to apply with a VA lender and figure out if you'll run into limits with your entitlement.
Entitlement tells lenders how much the VA will pay them if you default on your loan. In line with most lender requirements, the VA will pay up to 25% of the amount on your first VA loan, with no maximum loan limit amount. However, on your second VA loan, the backing/entitlement is limited.
The VA will determine 25% of the conforming loan limit in the county where you're buying, then subtract any entitlement you've already used on your first home's loan. If lower than 25% of the loan amount you want, you'll often need to pay the difference as a down payment.
VA loans require you to occupy the property as your primary residence within 60 days of the loan closing. More than 60 days but less than a year is occasionally allowed if you aren't able to move in sooner due to certain qualifying events such as retirement or property renovations. If you can't occupy the home because you are on active duty or otherwise employed in a distant location, a spouse or dependent child may be able to satisfy the occupancy requirement. Further, if you are deployed, you'll meet the occupancy requirement automatically.
When buying a second VA property, the occupancy requirements would shift to the new home purchase. For example, if you have a PCS order and want to keep your first house while buying a second with a VA loan, you would need to meet the occupancy requirements for the second home. It's best to speak to your lender and the VA to learn how the occupancy requirements will change on your first house and what you're allowed to do, as they can vary based on the situation.
While the VA doesn't set loan limits on first-time use of VA loans, you will run into limits when applying for a second VA loan. As explained above, the VA will only guarantee 25% of the county loan limit minus the entitlement you've already used. Many lenders want 25% backing as a minimum, which can lead to loan amount limits and/or down payment requirements.
Your debt-to-income ratio (DTI) shows how much debt you owe in comparison to how much money you earn on a monthly basis. Two house payments will cause your DTI to increase, which can limit your access to additional loans. Higher DTIs are associated with more risk because you have less income available for expenses. For perspective, most lenders like to see a DTI of less than 41%.
The VA doesn't limit how many times you can use a VA loan as long as you have entitlement available. For example, if you continue to buy primary residences, sell them or pay off your VA loans in full, you will continue to have your full entitlement reinstated. On the other hand, you could reach a wall if you try to keep the homes that still have VA-backed mortgages.
Reach out to a top VA lender today to make the most of your VA home loan benefit.
