But here's the fine print: Borrowers can't convert their primary residence into a rental and buy a similar-sized home in the same location. The second home would have to be a larger residence for a growing family, or would have to be in a different area.
Chris Pollard, a Certified Financial Planner professional at Great Path Planning in Monroe, New York, says turning a primary home into a rental property can be an "OK deal," with a rate of return that's about what you'd get with a conservative bond portfolio.
"You might as well have bought the bond portfolio and not had the headaches of tenants calling you at three o'clock in the morning if the pipes burst," Pollard says.
Getting entitlement back
Whenever you sell a home and pay off a VA loan, you get that part of your entitlement back and can use it again. However, if the loan is merely paid off or refinanced and you still own the home, the entitlement amount remains tied up in the home, Dill says.
There is one exception. Borrowers can request a one-time restoration of entitlement, even if the VA's must-sell rule has not been met.
"That would help you if you were truly stuck in a situation where you had two properties already," Guaranteed Rate's Dill says. "Instead of having to sell one, you could request that one-time restoration."
In this case, "one-time" truly means once in a lifetime.
Losing VA loan entitlement for good
VA loan entitlement can be permanently lost if you default on a VA loan, the lender forecloses and sells the home for less than what's owed, and the VA has to reimburse the lender.
When that happens, the VA's payment to the lender is deducted from your entitlement, and you can't get it back.
The same is true in the case of a short sale, in which the home is sold at a loss and lender isn't made whole.
The one-time restoration can't be used in the case of a foreclosure or short sale, unless the money is paid back to the VA.
"A lot of veterans assume that if they had a foreclosure back in the 1980s, they can do a one-time restoration," Dill says. "The VA doesn't grant it for situations where you defaulted on a VA loan. If they took a loss, they're not going to hand that (guaranty) back."
Note that the VA loan program isn't only for $200,000 homes. Read about how the program helps veterans buy upscale properties.