You’ve benefited once from a VA mortgage loan. But can you take advantage of this Department of Veterans Affairs loan program again?
The good news is, yes, you can get another VA home loan if you’re an eligible service member, veteran or other qualified borrower. Here are three ways this is possible:
- Purchase a home with a VA loan, sell it and then buy another home with a new VA loan.
- Refinance from one VA loan into another.
- Have two or more VA loans for different homes at the same time.
So, are you eager to shop around for another VA loan? Before you begin the process, it’s smart to understand what’s involved and how entitlement works.
VA mortgage entitlement explained
VA loan entitlement is the amount of money the VA will guarantee on a home loan. This helps determine how much you’re allowed to borrow before needing a down payment. Entitlement protection encourages lenders to offer VA loans with lower rates, no down payment and easier guidelines to qualify.
The entitlement amount is usually either $36,000 or 25 percent of the loan amount up to the conforming loan limit; currently, $510,400 is the limit in most areas of the country, but it’s higher in some markets.
“Eligible borrowers in most parts of the country have a primary entitlement of $36,000 and additional secondary entitlement of $91,600. That adds up to $127,600,” says Sam Atapour, branch manager at Embrace Home Loans in Ashburn, Virginia.
When buying a home with a VA loan, some or all of this entitlement is used up in the mortgage. For instance, with a $200,000 loan, $50,000 (25 percent) of the entitlement is used. Say you want to carry two VA loans. The math is simple: $127,600 minus $50,000 of entitlement used on VA loan #1 equals up to $77,600 in entitlement that can be used for VA loan #2.
If you currently have a VA home loan, you may request a COE Certificate of Eligibility to learn if you’re eligible to buy your next home with a VA home loan.
Second VA home loan scenarios
There are several ways you can capitalize on a VA loan more than once.
“First, you could sell your current home that has a VA mortgage and purchase another home with a VA mortgage,” says Atapour. “Because your first house was sold or is selling at the same time you buy a new home, your VA entitlement can be restored for the purchase of home number two.”
The second way is to refinance your existing VA loan into a new VA loan. This can be a good option if you want to lower your interest rate and monthly payment and/or tap into your home equity. You can choose a VA streamline refinance (also known as an Interest Rate Reduction Refinance Loan, or IRRRL) or a VA cash-out refinance loan.
The third way is to carry two VA loans for two different homes at the same time.
Buying versus renting using entitlement
“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,” explains David Reischer, real estate attorney and CEO of LegalAdvice.com in New York City.
But 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 would have to 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, branch manager and mortgage consultant with Pewaukee, Wisconsin-based Inlanta Mortgage. “But that rental income may help offset your mortgage payment, helping you qualify for the second VA loan.”
Second loan impact on funding fees
Don’t forget that the VA charges a funding fee when you take out a VA loan. This must be paid at closing or rolled into your loan balance.
“Normally, the funding fee is 2.3 percent of your loan amount. But it increases to 3.6 percent if you’ve previously used the VA loan program,” says Reischer.
Restoring your VA mortgage entitlement
Remember: You have an entitlement limit. But you can get your entitlement restored by selling your home and paying off the VA loan in full, Reischer notes.
However, if your loan is merely paid off or refinanced and you still own the home, 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.
But 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 they don’t agree, 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 forever
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 in the case of a short sale or foreclosure.
“However, you can regain your entitlement if you pay the VA back the losses from the foreclosure or short sale,” Atapour adds.
With additional reporting by Erik Martin.
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