How to get a second VA home loan
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How to get a second VA home loan

May 22, 2023
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You have already purchased a house with a VA loan. Now you may be wondering if you can qualify for a second VA loan. The answer is yes, but before you apply, it is good to know how the benefit you qualify for works, what you will pay in finance charges, and a number of other considerations.

How many VA loans can you apply for?

One of the great advantages of a VA loan is that it does not require a down payment. As long as you have residual rights (see below), access to a VA loan is a lifetime benefit. Several scenarios usually involve an additional VA loan:

Selling your current home and buying a new one

If you have already purchased a home with a VA loan and then sell that property, you restore your rights and can purchase your next home with a new VA loan. In this case, you can take out as many VA loans as you want during your lifetime, as long as you sell each home and move.

Refinancing one VA loan with another

Refinancing a VA loan ends the current loan and starts a new one. With a cash-out refinance, you can liquidate the equity in your home to get cash. If you are simply looking for a better interest rate, you can apply for a VA refinance with interest rate reduction (IRRRL), also known as a streamline refinance.

Using VA loans for two different homes

It is possible to obtain a second VA loan for another home. This often happens when an active duty service member receives a permanent change of station order. However, a licensed VA lender must approve multiple loans. In fact, you will have to prove that you can afford to repay both loans at the same time. You will also have to confirm that you have sufficient entitlement to purchase the home you want.

What is VA loan entitlement?

VA loan entitlement is the amount that the Department of Veterans Affairs (VA) guarantees on a home loan. It determines the amount you can borrow before you have to make a down payment. Entitlement protection encourages lenders to offer VA loans with lower rates, no down payment, and easier eligibility requirements. Here's an overview:

Full protection

You are fully protected if you never purchased a home with a VA loan, if you paid off a previous home with a VA loan and sold it, or if a home with a VA loan was foreclosed on or sold short, but you paid off the loan in full. As a borrower, full entitlement simply means that you do not have to make a down payment.

For mortgage lenders, however, the term "entitlement" refers to the amount the VA promises to pay them if you stop repaying the loan. For loans under $144,000, the VA guarantees lenders up to $36,000. For loans over $144,000, the VA guarantees up to 25 percent of the loan amount. There is no limit to the loan amount, but this does not mean you will be entitled to an unlimited amount. Ultimately, the lending institution determines the loan amount based on your creditworthiness and financial situation.

Partial or reduced entitlement

If you have partial entitlement, your situation is a little more difficult. There are several situations in which you have a reduced entitlement, such as if you have a VA loan that you are still paying off or about to pay off, or if you are refinancing a loan on a home you still own. As mentioned above, the base amount is $36,000 or 25% of the loan amount. This "25% of the loan amount" applies up to the conforming loan limit. In 2023, this limit is $726,200 in most regions.

In addition to the base fee, there is also a bonus fee, which is also 25% of the $726,200 limit. Suppose you have a VA loan of $200,000, which means you have used $50,000 (25%) of your entitlement. Now you want to take out two VA loans. You have already used $50,000 of your entitlement. You have a premium of $181,550 (25% of the conforming limit), but you must first subtract the $50,000. That leaves $131,550 for the second loan.

This does not mean that you can only borrow $131,550. This is simply the amount the VA guarantees to pay the lender in the event of default. To calculate the loan limit, multiply $131,500 by four to get $526,200. This is the maximum amount you can borrow without making a down payment.

If you want to buy a house that costs more than the loan limit, you will have to make a down payment equal to 25 percent of the difference between the price of the house and the loan limit. If the house costs $550,000, for example, subtract $526,000 to get the difference of $24,000. Multiply this amount by 25% to get $6,000, the down payment you will need to make on this loan.

How to get a second VA loan

Obtaining a second VA loan will likely be very similar to obtaining the first VA loan. Here is an overview of the main steps to take:

  • Apply for a Certificate of Eligibility (COE). This certificate tells lenders that you are qualified to receive a VA loan and also helps you understand the amount of your available allowance. You can get it online at the VA benefits portal or at your regional service center. You may also need your discharge document.
  • Determine whether you would like to reinstate your full allowance. If you plan to buy a new home, you might consider selling your current home to get the full allowance.
  • When refinancing, decide what is more important: more money or less work. If you are considering refinancing your mortgage, ask yourself what is best for you: a cash-out refinance or a VA IRRRL loan.
  • Get your finances in order. Although the VA does not require a minimum credit score, VA lenders usually do. Review your credit report, pay off your credit cards, and take other steps to show that you can afford your new mortgage payments.

Second, financing fees for a VA loan.

Financing fees are an unavoidable expense for most VA borrowers, and you may end up paying more for your second loan. If your down payment is less than 5% of the purchase price the second time you take out a VA loan (and all subsequent times), the financing fee is 3.3%. If you can make a down payment of more than 5% or 10%, the finance charge is reduced to more affordable levels of 1.5% or 1.25%, respectively.

Buying or renting using the right to housing

What happens if you rent your home while trying to buy another one with a VA loan?

"This can happen if, for example, you move to another location but do not want to sell your current home. In this case, you decide to rent your home and buy another one," explains David Reischer, a New York attorney.

But there is a problem: You cannot turn your primary residence into a rental unit and buy a similar-sized unit in the same location. The second unit must be larger to allow the family to grow or be located in a different neighborhood.

"You will not be able to use rental income to reduce your debt-to-income ratio when applying for a second VA loan," says Yvette Clermont, mortgage consultant at Novus Home Mortgage, based in Waukesha, Wisconsin. But rental income can help offset the mortgage payment, helping you qualify for the second VA loan.

Restore eligibility for a VA mortgage.

Remember: You have an eligibility limit, but you can restore your eligibility by selling your home and paying off the VA loan in full. If the loan is simply paid off or refinanced and you still own the home, the amount of the entitlement remains tied to the home.

Fortunately, there is an exception: you can apply for a one-time reinstatement of the entitlement, even if you have not complied with the VA mandatory sale rule. Suppose the buyer of your home for sale is a veteran who takes over the existing VA mortgage (so-called "assumption"). You can ask this person to replace his rights with the same number of rights you originally had. If the buyer does not agree, the right used to purchase the house will remain tied to the property until the new owner fully pays off the loan.

Loss of right to VA loan.

It is possible to permanently lose the right to the VA loan. This can happen if you default on the VA loan, the lender forecloses on the house and sells it for less than the amount owed, and the VA must repay the lender. In this case, the VA payment to the creditor is deducted from your entitlement and you cannot recover it.

This also happens in the case of a short sale, when the house is sold at a loss. Unfortunately, you cannot use the one-time entitlement recovery benefit for a short sale or foreclosure.

You can use VA loan benefits several times during your lifetime. Depending on the amount of entitlement, you can have multiple homes with VA loans at the same time. If you are ready to start the process, apply for a COE and start looking for lenders that offer the best rates.

Jonah Collins
Written by
Jonah Collins
Loans, Mortgage
Jonah Collins is a personal loans writer for Empire Finance Pro. Backed by Master's of Science in Finance from Bournemouth University, he has hands-on experience as an investor and trader, along with editing and writing experience in finance, investments.