Can You Use A VA Loan For A Second Home?

For service members, moving is often a common occurrence. This is one reason why the Department of Veterans Affairs (VA) offers VA loans for qualifying borrowers. These loans allow many active-duty service members, qualifying reservists and National Guard personnel, veterans and certain surviving spouses to purchase homes or refinance without worrying about making a down payment every time they move. What if you want to purchase a new home while keeping your previous one, though? Can you have a VA mortgage on multiple houses?

Let’s explore whether using a VA loan for a second home is possible, and why or why not.

Can A VA Loan Be Used For A Second Home?

VA loans can offer less strict credit score and down payment requirements than conventional loans, but borrowers must meet other requirements to be eligible. One of those requirements is that they can only use the home loan to purchase a primary residence, which, by definition, is a home the borrower intends to occupy for the majority of the year.

This stipulation can prevent a home buyer from purchasing a second home, such as an investment property or vacation home, that they don’t intend to use as a primary residence. However, if the first home is fully paid off, an eligible homeowner can request a one-time entitlement restoration so they can apply for another VA loan.

You can learn more about entitlements below.

What Is VA Loan Entitlement?

VA loan entitlement is the maximum amount the federal government can guarantee a lender if a borrower fails to repay their loan. For borrowers with full entitlement, the VA guarantees 25% of any loan amount – which is why many qualifying borrowers can purchase without a down payment.

If you want to buy a second property with a VA loan, you’ll typically have to do so using the entitlement you have left after your original loan – and only up to the conforming loan limits of your county.

You can find your entitlement amount and code on your Certificate of Eligibility (COE), a document that proves you meet a VA loan’s requirements. Your lender can get your COE for you, or you can apply through the VA website.

Basic And Bonus Entitlement

Everyone who qualifies for a VA loan is entitled to $36,000 as basic entitlement. This is based on the average home price being $144,000, which in most of the country is no longer the case. To make up for this, eligible borrowers are also entitled to bonus entitlement.

If a borrower has full entitlement, their basic entitlement is $36,000, or 25% of $144,000. This means that on all loans under $144,000, the VA guarantees up to $36,000 to the lender in the event of a default. This doesn’t mean $144,000 is the maximum you can borrow, though.

For homes listed above $144,000, the VA will guarantee a lender up to 25% of the full loan amount as bonus entitlement. This is only if you have full entitlement, however. If you have reduced entitlement (like if you’re still paying off another VA loan), the VA can guarantee only 25% of your county’s conforming loan limit, minus any entitlement you’ve already used.

To get a VA loan with reduced entitlement, a lender may require a borrower to make a down payment that covers the difference between the remaining entitlement and the 25% of the loan amount that the VA would normally guarantee.

Restoring Entitlement

If you’ve fully repaid a VA loan, you can request a one-time restoration that’ll put you back at full entitlement. This allows you to buy another primary residence with a VA loan, without making a down payment or selling your first home. You can restore your entitlement by requesting another COE.

As stated, though, this can only happen once.

Buying A Second Home With A VA Loan

If your plan is to buy a house with a new VA loan and sell the original property, you can pay off your first mortgage and regain your full entitlement to take out a second loan. The process gets a little trickier if you’re planning to keep your first home and use a VA loan on the second one.

Fortunately, workarounds are available for buying second homes with VA loans.

Vacation Homes

Only primary residences qualify for VA loans, so a vacation home you spend less than 6 months out of the year in likely won’t be eligible. You could potentially purchase a vacation home as a retirement home, but only if you plan on taking up residence within no more than 60 days after buying the property. However, active-duty service members retiring within the year can have a little more leeway if they give an anticipated move-in date.

Another option is to buy a new primary residence and keep your former place to use as a vacation home. If you’ve paid off your first house and can restore your full entitlement, you should be able to use a VA loan to buy the second property.

Investment Properties

Normally, investment properties don’t qualify for VA loans, since the purchased home must act as a primary residence for the borrower. However, you can convert your current home into a rental property if you’ve lived there for at least one year and you plan to purchase a new primary residence. Renting out your first home can also generate additional income for you.

Additionally, you’re allowed to buy a multi-unit investment property using a VA loan if you plan to live in one of the units and rent out the rest. But in this transaction, you likely won’t keep your previous property.

Getting A VA Loan For A Second Home

With market changes and rising home values, buying a home for the second time can be challenging depending on how long it’s been since you last purchased. Your situation could’ve changed in that time, too, possibly affecting your eligibility for a VA loan and obtaining a COE.

You’re eligible for a COE if you meet any of the following requirements:

• You’re a service member on active duty for at least 90 continuous days.
• You spent 90 days consecutive days in active service during wartime or 181 consecutive days during peacetime and weren’t dishonorably discharged.
• You served at least 6 years in the National Guard or Selected Reserve.
• You were discharged as a result of a service-related disability.
• You’re a surviving spouse of a service member and haven’t remarried or you remarried after turning 57 years old or after December 16, 2003.

The Bottom Line

Getting a VA loan for a second home is possible but can be a little complicated. Make sure you have enough entitlement left for a VA loan or see if you can get it restored by selling your home or requesting a restoration. You can purchase investment and vacation homes under certain circumstances as well. If you understand the process and what you want out of a second home, getting a VA loan for a second home is possible.

Thinking of buying another property? Discover how and where to buy your second home to make sure you’re making the best investment. Our friends at Rocket Mortgage^® can help you apply online. You can also give them a call at (833) 326-6020.