One of the trademark attributes of military service is getting new PCS orders. Sometimes PCS orders come at the best time, and sometimes they come at the worst time. Many active service members worry about getting a VA loan where they are currently stationed because they will likely only be there between two to three years. It’s true that military service members and their families move more than twice as much as civilian families do. So should anticipating PCS orders within the next few years stop you from getting a VA loan to purchase a home where you’re currently living? Hopefully the information we provide will help you make the best decision for your family.
This concern stems from correct knowledge that a VA borrower is only eligible to get a loan on the home they use as their primary residence, and that VA loans are typically restricted to one home at a time (it’s hard to use two different homes as ‘primary’ residences). However, there are certain special circumstances where a borrower can have two VA loans open at the same time. One of these circumstances is, you guessed it, when an active service member is needing to move to comply with PCS orders. The VA has this exception to the rule because they want service members to have full access to their benefits, but recognize that military life itself sometimes makes it difficult to do so.
One of the most beautiful things about this exception, is that it does not matter why the service member wants to keep the home. If they are moving because of PCS orders, the residency requirement is waived and the borrower can keep the house for whatever reason they see fit. Many service members use this as a way to earn rental income off their old house. More typically, the borrower may wish to wait until market conditions are better to list the house at a higher price, or to immediately list their house at a slightly higher price that might take more time to sell. Still others, especially those close to finishing their time in the military, might wish to keep the house because they’re planning on moving there after discharge. Remember, though, that just because VA rules don’t prevent a borrower from keeping their old home after PCS orders, that doesn’t mean there aren’t qualifications for a borrower to be able to use their VA loan benefits a second time.
In order to be able to use their VA benefits to purchase a new home at their new station, they need to have both sufficient entitlement and the ability to pay for both loans. For many young military families, those two conditions constitute an obstacle that is impossible to overcome. Since the VA has a rule that a borrower’s debt-to-income ratio cannot be higher than 41%, in order to handle two mortgages the borrower’s family would need very impressive income. Additionally, the borrower must have enough entitlement remaining in their VA loan account to cover the cost of the new home. This is not too much of a problem when talking about smaller, low-cost homes, but a borrower will likely not be able to use their VA loan for two sizable homes.
In short, a veteran’s full entitlement is $417,000 in most areas, though some higher-cost areas have higher limits. In other words, if a borrower buys a home for $200,000, then gets PCS orders to somewhere else, that borrower could potentially purchase another home for up to $217,000. If the service member is sent to a higher-cost area, that entitlement could increase. When opening a second VA loan, a borrower is subject to all of the same hoops to jump through as the first time; the borrower’s ability to pay the loan back is evaluated, as well as his or her credit and debt-to-income ratio, and a decision is made to determine whether the borrower can afford a second VA loan.
While it doesn’t work for every situation, it’s worth finding out if you could be taking advantages of the VA loan benefits program – both before and after your next PCS orders.