A VA home loan lets you buy a primary residence. Real estate investors can’t use this financial product to build out their rental property portfolios, but in some cases, you can use a VA loan to buy a second home. This guide will explore when it’s feasible to use a VA loan for this purpose, how VA loans work, and other essential details to know.
Understanding VA Loans
If you haven’t bought a house and qualify for a VA loan, it’s good to know how they work. They are some of the top mortgages available.
What is a VA Loan?
A VA loan is a mortgage that you can use to buy a primary residence. In some cases, you can also use it to buy a second home. These loans do not require a down payment, and they have no private mortgage insurance. VA loans also have lower interest rates than most financial products.
Who Can Get a VA Loan?
VA loans are only available for veterans, service members, and their spouses. Veterans and service members must have served enough days as outlined by the Department of Veterans Affairs.
Can You Use a VA Loan for a Second Home?
It’s possible to use a VA loan to buy a second home. Here’s what you have to know about that process.
What Counts as a Second Home?
A second home is a home that you own that is not a primary residence. You don’t spend as much time in a second home. You must live in a home for at least 14 days but fewer than 183 days. A primary residence is a property you spend at least 183 days in, and a second home is the other property that you own.
What are the Eligibility Requirements for Obtaining a VA Loan for a Second Home?
You can only use a VA loan to buy a property that becomes your primary residence. You will have to use the second home as your primary residence and turn your primary residence into your second home. That’s the requirement for using a VA loan to buy a second home.
Can You Use a VA Loan to Purchase a Vacation Home or Investment Property?
You cannot use a VA loan to buy a vacation home or an investment property. The Department of Veterans Affairs requires that you move into the newly purchased home within 60 days and turn it into your primary residence. Vacation homes and investment properties aren’t primary residences, so you can’t use VA financing to acquire them.
Some Scenarios About Using VA Loan for Second Homes
These are some of the scenarios that can play out for VA borrowers. Check if one of these applies to you.
Your First Home Has Been Paid Off
You can take out a second VA loan to buy your next property. However, you must still fulfill the VA’s requirement and turn the second property into your primary residence. You must move into the property within 60 days and live in the property for at least 183 days per year.
Your First Home Has Not Been Paid Off
You can buy the second home and convert it into your new primary residence. Even though both properties have VA loans, it’s okay to turn your first home into a second home once you buy the new primary residence. VA-approved lenders will check your finances to ensure that you can afford the monthly mortgage payments for both properties.
You’re Planning to Sell Your First Home
You can sell your first home to pay off its VA loan and restore your entitlement. Then, you can use the proceeds to buy your next primary residence. It further demonstrates your commitment to turning the second home into a primary residence since you aren’t holding onto your current home.
Your First Home Has Been Foreclosed
You have to wait at least two years after a foreclosure to use a VA home loan to buy another property. The veteran will also have to meet the minimum requirements for their debt-to-income ratio, credit score, and other factors as outlined by a VA lender.
How Does the VA Loan Entitlement Work When Applying for a Second Home?
VA loan entitlements reflect how much the VA will guarantee on your loan, making you less risky than other borrowers. Here’s how entitlement works when applying for a second home.
Can You Have Two VA Home Loans at the Same Time?
You can have two VA home loans. The most recent house you purchased must become your primary residence, while you can turn your current primary residence into a second home. Lenders will review your finances to confirm if you can keep up with two monthly mortgage payments.
What are VA Loan Entitlements and Limits?
VA loan entitlements reflect how much money the Department of Veterans Affairs guarantees to VA lenders if the borrower defaults. The VA will guarantee up to 25% of the loan amount, but loans must abide by conforming limits. This limit goes up each year, but most buyers cannot borrow more than $766,550 for a VA loan. This number goes as high as $1,149,825 for a single-family home in an area with a high cost of living.
How Do They Work?
VA entitlements give banks, credit unions, and other financial institutions extra protection if the borrower defaults. The VA insures up to 25% of each VA loan rather than having banks assume all of the responsibility of someone who doesn’t pay back the loan.
Steps to Obtain a VA Loan for Second Homes
While obtaining a VA loan may seem complicated, it’s more reasonable once you break it into steps. You can follow this process to secure VA financing.
Assessing Your Eligibility
Buyers should review a lender’s credit score requirements and see what DTI ratio they need to have in order to buy a home with a VA loan. Other requirements may apply.
Calculating Your Remaining Entitlement
The maximum VA entitlement is 25% of the conforming limit. Since the conforming limit is currently $766,550, then the maximum VA entitlement is $191,637.50. As you pay off a VA loan, your remaining entitlement will increase.
The remaining entitlement reflects your maximum loan amount before you can make a down payment.
For instance, if you have $50,000 remaining in your entitlement, you have to multiply that number by 4 to determine the maximum loan amount before a down payment becomes necessary. In this case, you can borrow up to $200,000 before a VA-approved lender will require a down payment. Areas with higher costs of living give you more flexibility.
Financial Considerations
It’s important to assess your monthly income and expenses to gauge if you can afford two monthly mortgage payments. Lenders will review your finances to confirm if you can keep up with the extra payment before approving your loan application.
The Application Process
The application process is straightforward. You will have to compare multiple lenders and gather necessary documents, such as your Certificate of Eligibility (COE), personal ID, Social Security Number, and documents that prove your income (i.e., tax returns and bank account statements).
Once you submit applications, you will receive offers from financial institutions. You’ll then have to compare the rates and terms from each lender and decide which one is right for you.
Other Important Aspects About VA Loans for Second Homes
These are some of the additional details to keep in mind when you want to use a VA loan to buy a second home.
Understanding Occupancy Rules
The property you buy with a VA loan must be a primary residence. While you can take out a VA loan for a second property if you turn that one into your new primary residence, you can’t use this loan to buy investment properties or second homes.
Clarifying Funding and Guarantee Limits
VA loans use conforming limits to gauge your entitlement. They are currently set at $766,550 in most areas, but this number is higher in areas with elevated living costs. The entitlement is 25% of the conforming limit. If your second VA loan exceeds the entitlement, you will have to make a down payment that covers the difference. A second VA loan makes the most sense if you have paid off most of your first VA loan or are looking to sell your current primary residence.
Dispelling Myths About Multiple VA Loans
It’s possible to have two VA loans, and you can still get a VA loan even if you have a low entitlement. Furthermore, VA loans do not have maximum loan amounts or minimum credit score requirements. However, VA lenders can set those restrictions to minimize their risk.
Working with Experienced VA Lenders
An experienced VA lender understands how these financial products work, but it’s crucial to ensure you’re working with a legitimate lender. Reading online reviews and comparing offers can help you determine the company’s legitimacy and if it’s right for you.
Navigating the world of VA loans can seem overwhelming, but The Federal Savings Bank simplifies the process for veterans and active-duty service members. Their knowledgeable team is ready to assist you in identifying the most suitable lending options tailored to your circumstances. The Federal Savings Bank is committed to ensuring that veterans and service members have access to the resources necessary for successful home financing.
If you’re ready to explore what The Federal Savings Bank can do for you, don’t hesitate to reach out. Completing a short online form connects you with a dedicated member of their team who can guide you through the loan process, answer your questions, and help you take advantage of your VA benefits effectively. Whether it’s purchasing your dream home or refinancing an existing mortgage, The Federal Savings Bank is here to help you achieve your homeownership goals.
Is Using a VA Loan for a Second Home Right for You?
Using a VA loan for a second home can be a good move if you intend to make that home your next primary residence. However, it’s not optimal for a vacation home or an investment property. You have to move into the property within 60 days per the VA guidelines. If you can do that, this loan is one of the top choices due to its competitive annual percentage rate (APR), zero down payment requirement, no minimum FICO score requirement, and no private mortgage insurance.
