How to get a second VA home loan
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You already bought a home using a VA loan. Now, you might be asking yourself whether you can get a second VA home loan. The answer is yes, but before you apply, learn how your entitlement benefit works, what you’ll pay for a funding fee and a range of other considerations
How many VA loans can you have?
One of the big pros of a VA loan is that it doesn’t require you to make a down payment. So long as you have remaining entitlement (more on that below), access to a VA loan is a lifelong benefit. There are different scenarios that typically involve an additional VA loan:
Selling your current home and buying a new one
If you’ve already purchased a home with a VA loan, then sell that property, you restore your entitlement and can buy your next home with a new VA loan. In this scenario, you can ultimately have as many VA loans as you want throughout your life, provided you sell each home and move.
Refinancing your VA loan to another
Refinancing your VA loan terminates your current loan and begins a new one. With a cash-out refinance, you can liquidate the equity you have in your home for cash. If you’re simply looking for a better interest rate, you can apply for a VA interest rate reduction refinance (IRRRL) loan, also known as a streamline refinance.
Using VA loans for two different homes
Getting a second VA loan on a different home is possible. It often happens when an active service member receives Permanent Change of Station orders. However, a VA-approved lender must approve you having multiple loans. Essentially, you’ll need to show that you have the means to repay both loans simultaneously. You’ll also need to confirm you have enough entitlement remaining to purchase the home you want.
What is VA loan entitlement?
VA loan entitlement is the amount of money the Department of Veterans Affairs (VA) will guarantee on a home loan. This helps determine how much you can borrow before needing a down payment. Entitlement protection encourages lenders to offer VA loans with lower rates, no down payment, and easier qualifying guidelines. Here’s an overview:
You have full entitlement if you’ve never previously purchased a home using a VA loan; paid off a prior home with a VA loan and sold that property; or had a home with a VA loan foreclosed or short sold, but fully repaid the loan. As the borrower, “full entitlement” simply means you don’t need to make a down payment .For mortgage lenders, however, “entitlement” refers to the amount the VA promises to repay them if you were to stop making payments on your loan. For loans below $144,000, the VA guarantees lenders up to $36,000. For loans above $144,000, the VA guarantees up to 25 percent of the loan amount. There isn’t a limit on the loan amount, but that doesn’t mean you’ll qualify for an unfettered sum. Ultimately, the lender still determines how much you can borrow based on your credit and finances.
Partial or reduced entitlement
If you have partial entitlement, your situation is a bit trickier. There are several situations in which you would have a reduced entitlement, including having a VA loan you’re still paying back or paying off or refinancing one on a home you still own. As we already noted, the basic entitlement amount is either $36,000 or 25 percent of the loan amount. That “25 percent of the loan amount” applies up to the conforming loan limit. In 2023, this limit is $726,200 in most areas.
Beyond the basic entitlement, you also have a bonus entitlement, also 25 percent of the $726,200 cap. Let’s say you have a $200,000 VA loan, meaning you’re using $50,000 (25 percent) of your entitlement. Now, you want to carry two VA loans. You’re already using $50,000 of entitlement. You have a bonus entitlement of $181,550 (25 percent of the conforming limit), but you’ll have to subtract the $50,000 first. This leaves you with $131,550 in entitlement for the second loan.
That doesn’t mean you can only borrow $131,550, though. That’s just the amount the VA guarantees to pay to the lender if you default. To calculate the loan limit, multiply $131,500 by four to get $526,200. That is the maximum amount you can borrow without making a down payment.
If you want to buy a home that costs more than the loan limit, you’ll need to pay 25 percent of the difference between the home price and the loan limit as a down payment. If the home costs $550,000, for example, subtract $526,000 to get the $24,000 difference. Multiply that by 25 percent to get $6,000, the down payment you would have to provide for this loan.
How to get a second VA loan
Getting a second VA loan will likely feel quite similar to your first VA loan. Here’s a rundown of the key steps involved:
- Request your certificate of eligibility (COE). This proves to lenders you’re qualified to receive a VA loan, and also help you understand how much of your entitlement benefit is available for use. You can get it online through your VA benefits portal or by reaching out to your regional service center. You might also need your discharge papers.
- Determine if you want to restore your full entitlement. If you plan to buy a new home, you might want to consider selling your current home to get your full entitlement benefit.
- If it’s a refinance, figure out what’s more important: more money or less work. If you’re simply thinking about refinancing your mortgage, consider which loan is better for you: a cash-out refinance or a VA IRRRL.
- Get your finances in order. While the VA doesn’t have a minimum credit score requirement, VA lenders typically do. Review your credit report, pay off credit cards and take other steps to demonstrate you’re equipped to pay your new monthly mortgage payments.
Second VA loan funding fees
The funding fee is an inescapable expense for most borrowers of VA loans, and you could wind up paying more for it on your second loan. If you make a down payment of less than 5 percent of the purchase price the second time you take out a VA loan (and any other time after), the funding fee is 3.3 percent. If you can make a down payment of more than 5 percent or 10 percent, though, the funding fee comes down to more affordable levels of 1.5 percent or 1.25 percent, respectively.
Buying vs. renting using entitlement
What about renting your home while you’re trying to buy another one with a VA loan?
“This might occur if, for example, you are stationed at a different location but don’t want to sell your existing home. In this case, you decide to rent out your existing property and buy another one,” says David Reischer, an attorney in New York City.
There’s a catch: You can’t convert your 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 be in a different area.
“You would not be able to use any of that rental income to reduce your debt-to-income ratio when applying for the second VA loan,” says Yvette Clermont, a mortgage consultant with Waukesha, Wisconsin-based Novus Home Mortgage. “But that rental income may help offset your mortgage payment, helping you qualify for the second VA loan.”
Restoring your VA mortgage entitlement
Remember: You have an entitlement limit, but you can restore your entitlement by selling your home and paying off the VA loan in full. If your loan is merely paid off or refinanced and you still own the house, the entitlement amount remains tied up in the home.
Fortunately, there’s an exception: You can request a one-time restoration of entitlement benefit, even if you’ve not met the VA’s must-sell rule.
Say the buyer of your home for sale is a veteran who takes over your existing VA mortgage (called an “assumption“).
“You can ask this person to substitute his or her entitlement for the same amount of entitlement you originally used. If they agree, your original entitlement will be restored,” says Clermont.
If the buyer disagrees, the entitlement you used to buy the home will remain tied up in the property until the new owner fully repays the loan.
Forfeiting your VA loan entitlement
It’s possible for you to lose your VA loan entitlement permanently. This can happen if you default on your VA loan, the lender forecloses and sells your home for less than you owe, and the VA has to reimburse the lender. In this scenario, the VA’s payment to the lender is deducted from your entitlement, and you can’t get it back.
This is also true of a short sale, in which your home is sold at a loss. Unfortunately, you can’t use your one-time restoration of entitlement benefit for a short sale or foreclosure.
It is possible to take advantage of the benefits of VA loans multiple times throughout your life. Depending on the amount of entitlement you have, you could even have multiple homes with VA loans at the same time. If you’re ready to begin the process, request your COE and start looking for lenders with the best rates.