The VA Advantage: Securing Your Second Home with A VA Loan

The introduction of VA loans came as a welcome relief for veterans and active duty service members (as well as their spouses) seeking mortgage financing. These credit facilities are especially popular among first-time homeowners. All they need to do is fulfill the eligibility criteria for a VA construction loan and kick-start the process of buying or building their dream homes.  

But what if you’ve already procured a VA loan for your primary residence, can you apply for the same funding to finance your second home?  

Read below as we expound on the VA loan second home eligibility criteria and application process.

What Is A VA Loan?

VA (short for Veterans Affairs) loans are mortgage facilities guaranteed by the United States Department of Veterans Affairs. The loans are available to eligible service members (both veterans and active duty) and their spouses.  

One of the common misconceptions about VA loans is that the U.S. Department of Veterans Affairs issues the funding. But does the VA department actually give you money to purchase or construct a home?  

The answer is a resounding NO.  

As explained, the Veterans Affairs Department simply guarantees VA loans. That means you must find a third-party lender, albeit VA-approved.  

What’s The Purpose of a VA Loan? 

VA loans were initially designed to fund service members seeking to build or buy their primary residence. The loans have proven incredibly useful for first-time home buyers. They’re unarguably one of the most effective government housing initiatives.  

Recently, however, the VA loan program has attracted applicants looking to buy or build multiple properties.   

Can You Obtain A VA Loan For A Second Home? 

VA loans stand out for their low down payment amounts and competitive interest rates. Beneficiaries cite higher lending amounts and extended repayment periods among the key VA loan benefits.  

So, if you’ve used a VA loan before, it’s understandable why you’d want to apply for the loan again to fund a second home.  

While the VA department doesn’t expressly guarantee funding for multiple property investments, it’s technically possible to secure a VA loan for a second home. You only need to follow certain policies to qualify for the loans.

Eligibility Criteria for Obtaining A VA Loan for a Second Home 

The most important step when seeking a VA loan is updating your Certificate of Eligibility (COE). The Certificate of Eligibility is a document that serves as proof to a VA loan processor that you fulfill all the minimum requirements for a VA mortgage. You can obtain the document by yourself or through your lender’s facilitation.  

The VA Certificate of Eligibility outlines your outstanding VA entitlement. This is particularly important if you’re applying for a VA loan for a second home.  

Full entitlement ($647,000) means you’re either a first-time applicant or have fully serviced your first VA loan.  

Assume you have an outstanding $400,000 on your first VA mortgage loan. In that case, your entitlement would be $647,000 – $400,000 = $247,000.  

It’s also worth noting that the Veterans Affairs Department insures 25% of your mortgage total. To calculate your full guarantee, you’ll need to multiply the figure indicated in your COE by four.  

Experts also advise against exceeding the VA’s full entitlement of $647,000. Hitting the limit means you’ll need to secure any subsequent loans with a down payment. While the VA charges one of the lowest down payments among renowned guarantors, the amount required may be out of your reach depending on how much loan you’re applying for.

Different Scenarios That Affect the Chances of Securing A VA Loan 

1. You’re Selling Your Current Home 

According to the Department of Veterans Affairs, you should apply for a second VA loan if you plan on using the property as your primary residence. Therefore, the quickest way to access a VA loan for a second home is to sell your current home first. Timing is paramount here, considering that you may be homeless momentarily.  

Selling your primary residence also allows you to meet another essential VA loan eligibility requirement – restoring your entitlement. If you were still servicing your first VA loan, you could utilize the proceeds from selling the property to settle the loan entirely, consequently restoring your entitlement.  

However, it’s worth noting that your Certificate of Eligibility doesn’t auto-update. You must contact the Veterans Affairs Department for an update before being eligible for another VA loan guarantee.  

Also, the VA department requires successful applicants of VA loans for a second home to move into their new property within sixty days. There are exceptions to active duty service members who may be deployed in faraway missions and veterans currently residing out of state, who may have up to one year to move in. You may also request additional moving time if the new house requires extensive renovations.  

2. You’re Keeping Your Current House 

The Veterans Affairs Department may impose stringent occupancy rules for VA loan applicants. However, you can still obtain a VA loan for a second house even if you intend to keep your current residence.  

The smartest approach here is to apply for a VA loan with the initial intention of converting the new home into your primary residence. Once the mortgage sails through, you could live in the new property for a while and then rent it upon moving out.  

The chances of getting approved for a VA loan for a second home with the intention of keeping your first property are higher if you’ve already settled your first loan. Otherwise, you’ll need to invoke second-tier/bonus entitlement or one-time restoration of entitlement for the second loan. 

3. You Foreclosed On Your First Home 

Foreclosures can deal a massive blow to your credit score. But getting foreclosed on doesn’t utterly disqualify you from applying for another VA loan.  

One way to access VA funding after a foreclosure is to seek foreclosure forgiveness from your lender. Most lenders will grant forgiveness if you can prove that the foreclosure resulted from extenuating circumstances, such as sudden death or illness in the family.  

Besides, considering your current entitlement, you can still apply for a second VA loan.  

Lastly, most VA approved lenders have a two-year minimum period before applicants that were foreclosed on can borrow again. You can use this period to repay your government debt, raising your entitlement.

Wrap Up 

VA loans primarily aim to help service members become proud homeowners.  

But although designed mainly for first-time homeowners, it’s great to know that you can also access a VA mortgage for a second property investment.