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Buying a second home with a VA loan technically isn’t allowed, but there are ways to make it work. It comes down to how much entitlement you have and how much cash you have to invest in the home to make up the difference of any guarantee the VA won’t offer.
VA loans are meant for primary residences for veterans and their families, but you can buy a second home using your VA financing with the right steps.
Here’s how it works.
Can A VA Loan Be Used to Buy a Second Home?
Technically if you asked the VA this question, they’d say ‘no.’ The VA loan is meant for primary residences only. But there are some workarounds to help you use VA loans to finance a second home.
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Primary residences are what VA loans are meant to finance. You can borrow up to 100% of the home’s sales price, which means you don’t have to put any money down. Once you pay the loan off, you own the home and can ask for restoration of your VA benefits.
This is a one-time offer that will likely get approved if you paid your mortgage on time and there weren’t any issues. This allows you to turn your current home into your ‘second home’ while using your VA benefits to buy your new primary residence.
You can’t use VA financing to buy investment properties, but again, you can cover your primary residence into an investment home and use your remaining entitlement (the unused portion of your VA benefits) to buy your new primary residence.
The key is that you live in the home you’re currently using the VA financing for. If you convert your first home into an investment property, it’s best to talk to your mortgage lender before doing so.
But there’s one exception.
If you use your VA financing to buy a multi-unit property and live in one of the units, it’s perfectly acceptable to rent out the other units, giving you an “investment property.”
Vacation homes are like investment homes – they are a no-go for VA loans. But you can buy another primary residence with your remaining VA entitlement and turn your current home into your “vacation home.”
Understanding VA Bonus Entitlements: The Facts That Matter
The most important factor in all of this is understanding the VA entitlement. This is the amount the VA will guarantee for lenders and is how lenders can offer loans with no down payment. The VA guarantees 25% of the loan amount given, which means if you defaulted on the mortgage, the VA would pay the lender back 25% of what they lost, which makes up for the lack of down payment.
The basic entitlement is $144,000, but since most homes sell for much more than this, the VA offers a bonus entitlement to help veterans secure a home.
Technically, VA loans don’t have loan limits today, but that only applies if you have full entitlement. You have full entitlement if you’ve never used your VA benefits or had your benefits restored after paying the loan off in full.
If you used some of your entitlement, though, you only have what’s left if you want to buy another home. Your loan limits are then whatever the limits are for your county. The national conforming limit is $647,200, but the limit can vary by county (higher or lower).
Most lenders require veterans to have either entitlement of 25% of the home’s price or to make up the difference with their own cash.
Bonus Entitlement Example
It helps to look at an example of how the bonus entitlement works.
The VA will guarantee the lower of 25% of the area’s loan limit minus your remaining entitlement or 25% of the loan amount.
Let’s say John has $90,000 of his entitlement left, and he wants to buy a $250,000 house. The loan limit in his area is $647,200.
Here’s what the VA considers:
$647,200 x 0.25 – $90,000 = $71,800
$250,000 x 0.25 = $62,500
The VA will guarantee $62,500 in this case, and since the down payment the lender is looking for is $75,000, John would need to come up with the difference of $9,300.
Restoring Your Entitlement: Can You?
You might be able to restore your entitlement IF it’s your first time. The VA doesn’t allow you to keep restoring it, but a one-time exception is usually granted. However, for it to work, you must have a timely payment history on your mortgage even though it’s paid off. If you were a risky borrower, they might not restore it – they don’t have to.
How Many Times Can a VA Loan be used?
There isn’t a limit on the number of times a VA loan can be used, but there comes a time when your entitlement runs out or gets low, and you have to make up the difference in cash. If you paid off your loan entirely and want to use it again, you get a one-time restoration.
Can I Get Another VA Loan If I Already Have One?
If you can prove you can afford two VA loans, you might be able to have two at a time if you move out of the original home and move into the new home, you’re using VA financing for. But you must make sure your debt-to-income ratio can handle it and that you’ll have enough disposable income to meet the VA guidelines.
Bottom Line: VA Loans and Second Homes
Technically you can buy a second home with a VA loan, but it’s in reverse. The home you buy with the financing the second time will become your primary residence, and the first home you buy will be your vacation or investment home.