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Using the VA Loan for a Second Home, Everything Veterans need to know

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The Five Ws

Who: Veterans
What: Can I use a Second VA Loan?
When: Now! Your next home awaits
Where: On www.Halfbare.com 
Why: To eliminate the myths and rumors of a second VA Loan

Second VA Loan

There are a lot of myths and misconceptions out there about the VA Loan program

The most common; a second VA loan or second-tier entitlement.

Yes, the VA allows veterans to have two VA loans at the same time in some situations.

It’s actually possible to have more than two at once. And you can definitely qualify for a VA loan even if you defaulted on one in previous years.

Don’t let anyone in the mortgage or real estate industries tell you differently. The key is something called second-tier entitlement.

The time to act on your VA loan benefits again is now.

Understanding Entitlement

Eligible veterans in most parts of the country have a primary entitlement of $36,000 and an additional, secondary entitlement of $85,087. Add those together and you get $121,087.

For borrowers in most parts of the country, that’s the maximum amount of VA loan entitlement they have at their disposal (buyers in high-cost counties actually have more).

It allows qualified buyers to purchase up to $483,350 before needing a down payment.

When you purchase a home with a VA loan, some or all of your entitlement is tied up in the mortgage. Because the VA usually guarantees a quarter of the loan amount, the amount of entitlement you utilize is typically equal to 25 percent of the loan amount.

For example, on a typical $200,000 loan, you’re using $50,000 of entitlement.

Now, lets do some public math.

$121,087 – 50,000 = $71,087

So you have about $70,000 left over in remaining entitlement.

Veterans and military members purchasing in more expensive housing markets would have even more VA loan entitlement available. VA loan limits are linked to the maximum entitlement amount and rise to $726,525 in costlier markets in the continental U.S.

The remaining entitlement amount makes it possible for VA buyers to have more than one VA loan at the same time or purchase after experiencing a foreclosure or short sale.

How can I have Two VA Loans at once?

Black magic!

No, just kidding.

There are circumstances that allow veterans to have two or more VA loans at the same time.

A common scenario involves a VA homeowner who has to relocate to a new duty station but wants to keep and rent out his or her primary residence. 

This is the MOST common reason. 

Tip: One piece of advice I was given at my first duty station was to buy a home at the duty station I was most likely to revisit/PCS/retire and turn it into a rental. 

Example

Let’s say you bought a $200,000 home at your current duty station and get PCS orders 3 years later.

Rather than sell the home, you want to rent it out and buy again at the new duty station using your remaining entitlement.

Here’s how the math works, assuming you’re buying in another county with the standard VA loan limit.

$484,350 x 25% = $121,087 Maximum Guarantee

$121,087 – $50,000 = $71,087 Entitlement Available

$71,087 x 4 = $284,348 Maximum Loan Amount with No Down Payment

In this example, you could borrow up to $284,348 before needing to factor in a down payment. Anything above that amount would require a down payment of 25 percent of the excess.

If the excess was $4,000 you would need to pay $1,000 down payment. 

Remember, a down payment is only required if the entitlement amount is exceeded.    

VA loan entitlement can be a confusing topic, in part because the Certificate of Eligibility (COE) doesn’t clearly indicate how second-tier entitlement works.

One of the challenges with this situation is meeting the debt-to-income ratio and residual income requirements, since you’re basically on the hook for two mortgage payments each month.

It’s important to fully understand the VA loan requirements in order to determine if you can juggle two loans at once.

The key to having this work is finding a renter for your first home. If you buy near a military base, you will always have renters since military members are always coming and going.

VA Loan after VA Foreclosure

Let’s squash another VA Loan rumor!

A member who has a VA loan foreclosed doesn’t mean you can’t get another VA loan.

In fact, you may be able to secure financing after just two years. 

Following a foreclosure or short sale, it’s often more a question of how much house can you buy before needing to factor in a down payment.

Veterans who suffer a foreclosure may see some, most or all of their entitlement caught up in the mess. VA lenders first have to determine how much entitlement you have left, if any.

For example, let’s say you had $50,000 of entitlement tied to your foreclosure and you want to purchase a home for $200,000 in a county with a standard $484,350 loan limit.

The math in this case would be exactly the same as the situation above.

Surprisingly, many borrowers use their second-tier entitlement to secure financing in the wake of a VA foreclosure.

One of the weird little quirks of second-tier entitlement is there’s a minimum loan amount of $144,001.

Conclusion

Hopefully this cleared up any confusion in regards to a second VA loan.

With a solid budget, buying a second home can be a great investment. I know one Sailor that bought 6 homes by the time they retired. Five of them are rented out while he lives in the Sixth. He used the VA loan program for each one and now has a steady stream of passive income. 

Be cool right?!

Was this Second VA Loan article helpful for you? Let me know in the comments below. 

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