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Using a VA Loan for a Second Home: How It’s Done

Updated on:
Content was accurate at the time of publication.

It’s possible to use a VA loan for a second home, but this process isn’t as easy as simply finding a lender and applying for another mortgage. There are quite a few different rules you’ll need to follow to ensure that you qualify. With that in mind, here’s a look at what you need to know before applying for a VA second home loan.

Yes, you technically can use a VA loan for a second home. However, the process isn’t as simple as you might think. You’ll have to meet certain eligibility criteria to make it work.

This is because VA loans are meant to help eligible service members purchase a primary residence or home they intend to live in full time. VA mortgages even come with specific occupancy requirements to help ensure that the homes they guarantee are inhabited for most of the year. Specifically, you’ll have 60 days — in most cases — to move into your new property and start living in it full time.

As a result, it’s not so easy to use a VA loan to buy a vacation home that’s only occupied on a part-time basis or an investment property that you don’t intend to occupy at all. Still, if you play your cards right, there are a few ways to work around the occupancy requirements and get a second VA home loan.

Let’s take a look at a few situations where it may be possible to get a second VA loan:

1. Your first VA mortgage is fully paid off

Once your VA home loan is fully paid off, you can qualify for a one-time restoration of your VA benefits, even if you haven’t sold the property you own outright.

After you fill out VA Form 26-1880, you’ll once again have access to your full entitlement benefits (more on that later) and can get another VA loan.

Just remember that this is a one-time-use benefit, meaning that you won’t be able to use it to continually buy new properties with a VA guaranty.

2. You can afford to manage two mortgage payments at the same time

If you still owe money on your mortgage and want to keep your existing property, it’s possible to transition your old home into a vacation home and use another VA loan to purchase a new primary residence.

In this case, you’ll need enough income to qualify to cover both mortgages at the same time. You’ll also be limited to partial entitlement (more on that later) on your new loan, which means you should be prepared to make a down payment.

3. You’re allowing another service member to assume your mortgage

Finally, VA loans are assumable loans, which means it’s possible for a buyer to take over the payments on your existing mortgage. Typically, this is done as a benefit to the buyer if your loan terms are much better than the ones that they’d receive on a new mortgage.

However, if you’re able to find another eligible service member to assume your loan, you could essentially swap out their entitlement for yours, leaving you with full entitlement benefits that you can use to purchase a new home.

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Again, since VA loans are meant to be used to purchase primary residences, they’re not intended for investment property purchases. Luckily, though, there are a few methods you can use to make it happen.

You can try house hacking

The easiest way to use a VA loan to buy a rental property is by house hacking. In this case, house hacking would involve using a VA loan to buy a multifamily property with up to four units and living in one of the units as your primary residence. You would then be able to rent out the other units and collect rental income.

You can transition your old home into a rental property

As mentioned above, it’s also possible to eventually transition your old home into an investment property and use your remaining entitlement to purchase a new primary residence. However, if you decide to go this route, you’ll have to meet some fairly strict underwriting guidelines, which include:

  • Demonstrating prior experience managing rental units or having a background in property management
  • Having at least six months of cash reserves on hand
  • Sharing any lease agreements that are already in place
  • Deducting 25% of your rental income from the qualifying amount as a vacancy factor

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You’re generally not allowed to use a VA loan to buy a vacation home, but again, there are ways to get around the imposed stipulations.

For example, if you can afford to repay two mortgages simultaneously, you can use partial entitlement to purchase a new home and transition your old home into a vacation destination. In this instance, though, you’ll still be required to move into your new home within 60 days.

Eligible exceptions

Fortunately, there are a few exceptions to the 60-day occupancy requirement that many VA borrowers face:

  • Military spouse or dependent child: If you’re on active duty, your military spouse or dependent child can satisfy the occupancy requirement by moving into the property ahead of you.
  • Deployment: Whenever you’re deployed from your permanent duty station, you’re considered on a temporary duty status, which satisfies the occupancy requirement.
  • Retirement: If you’re planning on retiring soon, you’ll have up to a year to purchase your new home and move in.
  • Renovations: Delays in occupancy are also permitted if your new home needs substantial improvements or repairs.
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Now that you understand how to use a VA second home loan, it’s important to ensure that you’re clear on how VA entitlement works. At its core, VA entitlement is the dollar amount that the U.S. Department of Veterans Affairs (VA) will pay your lender if you default on the mortgage.

Here’s what you need to know about the different types of entitlement:

Basic entitlement vs. bonus entitlement

VA entitlement guarantees up to 25% of your loan amount. However, this guarantee typically comes in two segments: basic entitlement and bonus entitlement.

Basic entitlement

Basic entitlement reflects home prices when the VA loan program first started. It holds that the VA will insure up to $36,000, which is 25% of $144,000, a common sale price when the VA first began guaranteeing home loans.

You’ll often see this amount listed on your certificate of eligibility (COE). Yet, the VA is well aware that today’s home prices typically exceed the original $144,000 benchmark, which is why it instituted bonus entitlement.

Bonus entitlement

Sometimes called “additional entitlement,” bonus entitlement is meant to bridge the gap between the $36,000 limit on basic entitlement and today’s home prices.

As long as you have full entitlement, you can use your bonus entitlement to cover the difference between your basic entitlement and 25% of your loan amount. If you only have partial entitlement, the process will work a bit differently.

What is partial entitlement?

If you already have an existing VA loan, the amount the VA will guarantee for a second VA loan is limited. This is known as having partial entitlement.

Partial entitlement typically occurs when you use a VA loan for a second home and decide to carry two mortgages at once. However, it can also happen if your first mortgage goes into foreclosure or if you decide to take steps to refinance your mortgage into a non-VA loan.

It’s worth noting that you can still get a mortgage loan with partial entitlement. You may just need to be prepared to make a down payment equal to 25% of the loan amount, minus your remaining entitlement. If you can’t make that size of a down payment, consider looking into available down payment assistance programs.

Calculating remaining entitlement

The VA calculates your remaining entitlement as the lesser of the following two equations:

25% of the loan amount

OR

25% of your new county’s conforming loan limit minus the amount of entitlement used for your first VA loan.

You’ll probably have to do some math to figure out how much entitlement you have left, so let’s look at a few examples of how partial entitlement works.

Example of partial entitlement

Let’s say Steve wants to buy a home worth $500,000 in an area where the conforming loan limit is currently $766,550. However, he used $100,000 of VA entitlement in the past that hasn’t been restored.

His remaining entitlement equations might look something like this:

25% of the loan amount: 25% of $500,000 = $125,000

OR

25% of the county conforming loan limit, minus the entitlement amount used for the previous VA loan:

$766,550 x 25% = 191,638

$191,638 – $100,000 = $91,638

In this case, Steve’s entitlement would be $91,638, because the VA guarantees the lesser of those two amounts. He’d likely have to make a down payment on his new home. His down payment equation looks like this:

25% of the loan amount minus the remaining entitlement amount: $125,000 – $91,638 = $33,362

Steve’s down payment would be equal to $33,362.

Example of partial entitlement in a high-cost area

As mentioned above, conforming loan limits can vary by county. In certain high-cost areas, the conforming loan limits can stretch beyond their normal bounds to make it possible for more people to buy homes.

For example, Alex wants to purchase a home in Hawaii, where the conforming loan limit currently extends to $1,149,825. Alex is considering a $900,000 home in the area and has $150,000 of their entitlement tied up in a previous VA loan.

Alex’s remaining entitlement equations might look something like this:

25% of the loan amount: 25% of $900,000 = $225,000

OR

25% of the county conforming loan limit, minus the entitlement amount used for the previous VA loan:

$1,149,825 x 25% = $287,456

$287,456 – $150,000 = $137,456

Here, Alex’s entitlement would be $137,456, because the VA guarantees the lesser of those two amounts. So, Alex will likely have to make a down payment on their new home. Their down payment equation could look like this:

25% of the loan amount minus the remaining entitlement amount: 25,000 – $137,456 = $87,554

In the end, Alex’s down payment would be $87,554.

How to restore your entitlement

Fortunately, if you intend to use your one-time restoration benefit to get a VA second home loan, the process is fairly easy.

All you need to do is fill out VA Form 26-1880, which is likely the same form you used to obtain your certificate of eligibility for your first loan. Once it’s complete, send the form to the VA’s Atlanta eligibility center.

If you need assistance filling out this form, a VA-approved lender can help.

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There are no official, VA-approved guidelines for how long you’d have to wait before getting a second loan, but individual lenders may impose their own requirements. Be sure to check with your lender to see if you’re eligible.

Yes, there will be a funding fee if you take out a second VA loan. It can range from 1.25% to 3.30% of the loan amount, depending on your down payment size. The bigger your down payment is, the smaller your funding fee will be.

Typically, VA loans don’t require a down payment. If you only have partial entitlement remaining, however, you may need to make a down payment equal to 25% of the loan amount, minus your remaining entitlement.

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