Have you used a VA loan in the past to purchase a home? If so, you probably know just how helpful these loans can be, both at the time of purchase and during the years of repayment.
Like the majority of Americans, however, you’ll likely purchase more than one home in your lifetime. As you did in the past, you may be interested in applying for a second VA loan.
However, because VA loans are backed by the government, there are some unique aspects of taking out a second VA loan. The following quick tips will cover exactly what you need to know before getting started.
Entitlements: What You Need to Know
As one of the more complex aspects of a VA loan, your entitlement can be difficult to understand even if you’ve already gone through the VA loan process.
Put in simple terms, your entitlement is the amount of money the Department of Veteran Affairs (VA) agrees to pay the lender in the event you happen to default on payments. It’s essentially a safety net for both lenders and borrowers in case of default.
The VA limits the entitlement based on two criteria:
- 25% of the home loan amount
- The conforming loan limit for conventional financing
With the second criteria, the conforming loan limit is determined by county, but for most loans in most counties, it is currently $453,100 in 2018.
So, for most VA homebuyers, it is safe to say that their total entitlement would be 25% of $453,100, which ends up being about $113,275. This entitlement amount, however, can be split into two, called the primary and secondary entitlement, if you do not use it all on your first home.
In general, the primary entitlement is for $36,000. If your first home costs over $144,000, you can dip into your secondary entitlement in order to still receive 100% funding of the loan; it just can’t exceed your county’s conforming loan limit.
Here’s an example: Say your first home cost $220,000. Because your VA entitlement guarantees 25% of the loan, you’ve used $55,000 of your entitlement ($36,000 + $19,000 of your secondary entitlement). That means your secondary entitlement still has $58,275 that can be used on a second home.
You can also sometimes have your primary entitlement restored (by filling out and submitting VA Form 26-1880) in a few specific conditions:
- You still own the home but have paid off the loan
- You sold the home and used the money to pay off the loan
- You transfer the loan to another veteran buyer who substitutes their entitlement for the original amount of entitlement you used
How Having Two VA Loans Works
It’s not uncommon for veterans to have more than one VA home loan at a time. Oftentimes members of the military purchase a home with the primary VA loan and then have to PCS to a new location in which they want to purchase another home.
If you’re in a similar situation, you may want to rent out your first home instead of selling it, which means you’ll be required to make mortgage payments on both houses. In this case, taking out a second VA loan allows you to be financially qualified to own two homes at the same time without worrying about defaulting on mortgage payments.
However, you will still have to qualify for the second loan, which includes:
- Making sure you’ll meet the occupancy requirements
- Reviewing the last 12 months of your existing loan payments to make sure they were paid on time and you’re up-to-date
- Calculating your residual income to make sure you meet those requirements, as well
The lender will also scrutinize your debt-to-income ratio to confirm that you’ll be able to make both mortgage payments. You should not use your secondary entitlement unless you are absolutely certain you can both loan amounts each and every month.
A Second VA Loan Can Help in the Event of Foreclosure
While the second entitlement is available to help you with the purchase of your second home, a second VA loan can also be used if you’ve happened to lose your primary VA loan due to foreclosure.
As long as your entire entitlement is not tangled up in the foreclosure, you should still be able to get a second VA loan. To find out for sure how much entitlement you have left after foreclosure, you can obtain a Certificate of Eligibility.
It is important to note that you cannot get a VA loan immediately after foreclosure. You must wait a minimum of two years after foreclosure before applying for and receiving a new VA loan.
However, once this time period has passed, choosing a VA loan again will likely still save you money over using other loan types. This is because your second VA loan still won’t carry any mandatory form of mortgage insurance, even after foreclosure. And, if enough of your entitlement remains, you also won’t need to make a down payment.
Because getting a second VA loan after a foreclosure has a waiting period, you should use that time to build your credit back up. During those two years, make sure you show a history of paying all of your debts on time so you don’t get turned down for a second VA loan because of concerns with your credit history.
Fees for Your Second VA Home Loan
VA funding fees help the government operate and manage the loan program, and they will be different for your second VA house loan.
That’s because the fees for a VA loan vary depending on a few factors including:
- How many times you’ve used the program
- Your individual military service
- The type of VA loan you’re applying for
In general, if you’re using the VA loan program for the second time and are purchasing a home with $0 down, you can expect to have a funding fee of 3.3% added to your loan amount. As with any other VA loan, the more you put towards a down payment, the lower your funding fees will be.
Now that you understand these key facts about taking out a second VA home loan, you’re ready to get started. Contact one of our loan experts today to learn about how to qualify for our competitive rates.