How to Use a VA Loan for a Second Home Purchase

VA loan benefits are hard to match! If you have VA eligibility, you have access to one of the best loan programs available. Once you purchase your first home with a VA loan, you may begin to wonder if its possible to use your VA benefit to buy a second home.

Can I use a VA loan to buy a second home?

The answer depends on what you mean by a “second home.” This question could mean any of the following:

• Once I have used a VA loan, can I use it again to buy a new primary residence?
• Is it possible to use my VA loan eligibility after a VA foreclosure or short sale?
• Can I buy a vacation home or rental property with a VA loan?

Can I use a VA Loan to purchase a new primary residence?

The answer here is yes, but the home you purchase must be the home that you plan to use as your primary residence.

Fortunately, VA loans are not a one and done type of eligibility thanks to bonus/second-tier entitlement. One such use involves retaining one property (that already has a VA loan on it) while buying a new primary residence.

Additionally, a VA buyer could plan to rent their departing residence and use up to 100% of the rental income to qualify for the new purchase, even with no prior rental experience.

Can I use a VA Loan after a foreclosure or short sale?

Yes, you can use a VA loan 1-2 years after a foreclosure or short sale. 

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.

If there is a prior VA foreclosure or short sale, VA loan guidelines do require sufficient re-established credit. A buyer must wait 1-2 years after the foreclosure is final to use their VA loan benefit.

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.

Using bonus entitlement after a foreclosure or short sale

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.

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 amount of money that you can borrow 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 to purchase a vacation home or rental property?

You cannot use a VA Loan to buy a vacation home or a rental/investment property. 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.

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.

If you’re planning to purchase a second home in the future, set up a meeting with your loan officer to determine a plan of action. We can help you determine next steps based on your unique scenario.