If you are a service member who owns a home financed by a VA loan and receive orders for a Permanent Change of Station, you may still have enough entitlement to purchase another property.
To qualify for a second VA loan, you must meet lender requirements such as credit score/history, debt-to-income ratio, and income. This article will explore several ways to obtain a second VA loan.
Restore Your Entitlement
VA or mortgage loans like Rob’s Loans are an excellent option for veterans, active-duty service members, and their surviving spouses who want to purchase a home. The program provides a low-interest rate and does not require a down payment.
It is possible to get a second VA loan after using up all your entitlement, but some specific requirements must be met. For example, you must wait two years after paying off your first VA loan before attempting to borrow again. You must also make sure that your credit and income are stable.
Entitlement can confuse borrowers, but it simply refers to the amount the Department of Veterans Affairs guarantees on your loan. Your lender will calculate your basic and bonus entitlement to determine how much you can borrow. Your entitlement is multiplied by four to reach the maximum loan amount you qualify for. You should only use your entitlement once, though, as it can be restored if needed in certain circumstances.
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Refinance Your First VA Loan
Those with VA loan entitlement remaining after paying off their first mortgage can obtain another VA loan by applying to have their entitlement restored. To do so, you must submit a VA Form 26-1880 or apply online. However, you must pay a higher funding fee on the second home purchase.
You can also use a cash-out refinance to convert your existing mortgage into a VA loan. To do this, you must meet VA and lender eligibility requirements.
Suppose you experienced a foreclosure, short sale, or bankruptcy. In that case, you can still qualify for a VA mortgage. The key is proving to lenders that you can afford a new mortgage and addressing the issues caused by foreclosure or bankruptcy. You can do this by documenting that your credit scores have recovered since the foreclosure or bankruptcy and meeting any other requirements imposed by your mortgage lender.
Buy a Second Home
Ever since the VA rolled out its home loan program, veterans, active-duty service members, and their surviving spouses have realized their homeownership dreams with a mortgage they don’t have to make a down payment on. However, if you’ve experienced foreclosure and want to purchase another home with your VA loan entitlement, specific stipulations must be met to qualify.
For example, the Department of Veterans Affairs only guarantees a certain percentage of a borrower’s mortgage, which in many areas of the country can be up to $144,000. If you have full entitlement remaining, you can obtain a second mortgage without worrying about a down payment.
However, your new home must be your primary residence. “The rules are that you have to live in the property or rent it out within a year,” says Walden. If you’re unable to meet these requirements, you’ll need to restore your entitlement through one of the following three ways:
Sell Your First Home
Getting a second VA loan is possible, but you must be careful about the timing. The Department of Veterans Affairs requires that you use a VA loan to purchase a primary residence, so you cannot buy a second home that will be a vacation home or investment property.
Alternatively, you can sell your original property and buy a two- or four-unit property where you would live in one of the units while renting out the others. This is allowed, but you must fully repay the VA loan and restore your entitlement before using it again.
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Another option is to invoke the Qualifying Veteran Assumption and allow another qualified borrower to assume your existing VA mortgage and substitute their entitlement for yours. If you choose this option, consult a specialist to ensure all the necessary qualifications are met. There are also ways to refinance your first mortgage into a non-VA product and then invoke a one-time restoration of entitlement, but this is a more complicated process.