For those lucky ones that have VA eligibility, the first thing that should come to mind when buying a home is using a VA loan. No matter if you are a first time home buyer, buying another primary home, or even buying a second home, buyers want to maximize their VA loan benefits whenever possible. A very popular question includes, “Can I use a VA loan for a second home purchase?”. Well, the answer depends on what the buyer means by second home. So, we may as well answer all variations of this question. This question could mean any of the following:
- Once I have used a VA loan, can I use a VA loan for buying another primary residence?
- I had a VA foreclosure or short sale, so can I use my VA loan eligibility again?
- Can I use a VA loan for a second home purchase (keep my primary residence and buy a vacation home)?
How to Use a VA Loan for a Second Home Purchase – Having Multiple VA Loans at Once
Fortunately, VA loans are not a one and done type of eligibility. One question deals with buying another primary residence while retaining the current residence. There are several terms for this which mean the same thing:
- Accessing or using bonus entitlement (also called second tier entitlement)
- Have multiple VA loans at once
- Renting out a departing residence while buying another primary home
Basically, each person with VA eligibility has additional entitlement. One such use involves retaining one property (that already has a VA loan on it) while buying another primary residence. There is a calculation VA lenders are able to use which shows a Veteran a limit for another no down payment purchase. Also, the buyer may be shown higher purchase prices and how much down payment is required. The feature called second tier or bonus entitlement makes this possible. So, yes having multiple VA loans is possible. With the right strategy, this could be a solution for buying a second home while retaining the current residence.
Additionally, a buyer is able to use up to 100% of the new rental income to qualify for the new purchase, even with no prior rental experience!
How to Use a VA Loan for a Second Home Purchase After a VA Foreclosure
Tough times happen to everyone at some point. However, VA certainly believes in giving Veterans a second chance. In the case of a prior foreclosure or short sale of a home with a VA loan, the Department of Veteran Affairs usually takes a financial loss. VA guarantees the VA lender and when the property is sold for less than the loan balance, it affects the Veteran’s VA entitlement. Yet, it does not mean the VA eligibility completely goes away! Remember the bonus entitlement we just spoke about for owning multiple homes with VA loans at once? Well, VA also allows bonus entitlement to be used for buying another home after a VA foreclosure or short sale.
Using Bonus Entitlement After Foreclosure or Short Sale
If there is a prior VA foreclosure or short sale, VA loan guidelines do require sufficient re-established credit. After a foreclosure, using a VA loan must be at least 1 – 2 year after finalization of the foreclosure. Short sales may be more lenient. In cases where there were no late payments prior to the short sale, it may be possible to use a VA loan immediately. Otherwise, it depends on the scenario and re-established credit history.
When using bonus entitlement after a foreclosure or short sale, the minimum loan amount is $144,000. Once, this level is surpassed a no money down purchase is possible up to certain purchase prices. The level of price depends on the amount of remaining eligibility and the buyer’s qualification. Qualifications include debt to income ratio, credit scores, and more.
Can I Use a VA Loan for a Second Home (Buying a vacation home)?
Regretfully, VA loans cannot be used to buy a vacation home or a rental property. For a purchase, VA loans are only allowed for a primary residence. An exception is when a property used to be a primary residence, still has the VA loan, and is now a rental or vacation home. In this case, it could be possible for a VA interest rate reduction refinance at primary residence VA rates.
Even though VA loans do not finance the purchase of a second home, it does allow buying a home a long distance from a borrower’s employment. Furthermore, VA allows a purchase where a service member’s spouse will occupy, although the service member may be stationed a long distance from the home.
Just because a VA loan is not available to purchase a second home, it does not mean it is off limits. There are some great second home loans available with as little as 10% down payment. Short of down payment? Getting a VA cash out refinance on your primary residence could be a solution.
Thinking of buying another home? Contact an OVM Financial loan officer