A fairly common occurrence for Veterans is the need for having multiple VA loans at once. This is called accessing a Veteran’s bonus entitlement or 2nd tier entitlement. Many do not realize that this is even a possibility. This financing option available through the Veterans Administration is available to service members, Veterans, and qualified surviving spouses not just once but twice.
When Are Multiple VA Loans Needed?
There are situations in a Veteran’s life that come up in which being able to get another VA loan is advantageous. The most common are moving out of a current home or having a derogatory housing event on a prior VA loan. Let’s discuss these two scenarios.
Rent Current Home and Use VA to Buy Another Home
Sometimes, by choice or necessity, owners may lease their current home. There are two areas at play in this case.
Veteran May Use Rental Income to Offset Current Residence
Up to 100% of the new rental income may be used but not more than the total mortgage payment on the rental. If the new lease is $1,100 and the mortgage payment including taxes and insurance is $1,000, $1,000 may be used to offset the prior mortgage. Therefore, qualifying for the new home is easier.
Accounting for the Used Entitlement on New Rental
Lenders use a formula to calculate the new VA loan amount. Reducing the entitlement available will eventually require a down payment as the price rises. We explain how this works further down in the article.
VA Loans After VA Foreclosure or Short Sale
Like mentioned, sometimes things happen. There could be a relocation, credit situation, and/or a downturn in the market which could cause a foreclosure or short sale. When this happens to a home with a VA loan, it affects the Veteran’s VA entitlement. A VA short sale or foreclosure does the same. The loss reduces the available entitlement. Unless the Veteran pays this deficiency back to clear up the entitlement, using VA to buy a house will need to be a bonus entitlement scenario.
The great thing is VA will still allow multiple VA loans even though VA took a loss on a prior property. Just like a rental property, any entitlement on a prior property will reduce the amount of bonus entitlement. VA basically says “I’m sorry you went through this, but I’m going to give you a second chance. Although, I may lower the amount I can lend you because of my loss.”
Notice we mentioned earlier that “often” there is no down payment. Some scenarios require a down payment, especially on larger VA loans. The larger the loan amount, the better the chance of down payment.
Is a Down Payment Required for Multiple VA Loans?
This is a common question. There are some rules for accessing a Veteran’s bonus entitlement. The first step is to obtain the certificate of eligibility. We can request this from VA. The VA certificate of eligibility shows lenders if any portion of the entitlement is tied up. If the entitlement will not be restored to the original $36,000 basic amount, then the bonus or 2nd tier entitlement is required to have multiple VA loans.
Next, the new loan amount must exceed $144,000. I know, strange rule, but it is one of the requirements. Then, lenders use a calculation which factors the new purchase price, county loan lending limit, and the used entitlement to determine down payment. As the purchase price of the new home increases, the chance of down payment does as well.
Other VA Loan Advantages
Having multiple VA loans at once is a quite the advantage, but there are more benefits:
- The Seller may pay up to 4% of sales price towards the Veteran’s:
- Rent buyout or penalty
- Down payment
- HOA dues
- First-year of insurance, escrows, daily interest
- VA funding fee
- Rate buydown
- Repairs not required by the VA appraisal
- Jumbo loans that exceed county loan limits up to $1,000,000
- No monthly PMI up to 100%
- Funding fee waived for disabled Veterans
- Condo financing
- Flexible guidelines on deferred student loan debt
Building Wealth Through Real Estate
We have spoken about using bonus or 2nd tier entitlement out of necessity, but it may also be out of choice. You have probably seen plenty of HGTV shows telling how to buy homes as an investment. Whether you know it or not, when you buy your first home, you are a real estate investor. The cool thing as a Veteran is you have probably purchased your first home no money down, but it goes up a notch after you have lived in your home for a year or several and have decided to rent the home. Then, Veterans may use this tool we have been discussing of having multiple VA loans at once to buy that second property. An additional tool to potentially help the next investment is our popular VA Renovation Loan. It allows Veterans to use 100% financing to purchase and include up to $75,000 extra for renovating a primary residence.
Contact an OVM Financial loan officer today for a VA loan strategy that fits your goals and scenario!