Let’s say you’ve already taken out a VA loan but are thinking of taking out a second one, maybe to cover another property. Many veterans wonder if and how they can use their VA entitlement a second time. The answer to this question is yes: you can take out a second VA loan. A veteran’s VA entitlement is lifelong, meaning there is no set limit to the number of loans they can take out. However, whether or not you’ll be approved for a second loan depends, as it did the first time around, on your financial situation.
How Does VA Entitlement Work?
All eligible veterans and active duty military service members qualify for VA entitlement. Simply put, VA entitlement is an amount of money, assigned to each eligible veteran, which the VA can guarantee to mortgage lenders. For example, if a veteran has a VA entitlement of $50,000, this means that if they ever default on their loan, the VA will repay $50,000 of that loan back to the lender. This VA guarantee is one of the main reasons why VA loans have such low interest rates; they’re relatively safe loans, compared to conventional or FHA loans, which aren’t guaranteed.
In most cases, veterans have two forms of entitlement: primary and secondary, or first-tier and second-tier. For example, let’s say a veteran has primary entitlement of $35,000 and secondary entitlement of $68,000. These are pretty standard numbers across the country, though depending on the area, they can amount to more. On your first home loan, you can use all your entitlement or just a portion of it. Since the VA guarantees about a fourth of the loan amount per loan, most borrowers choose to use just a fourth of their VA entitlement.
So, depending on how much of your entitlement you use the first time around, you may have enough entitlement left over to purchase another home with the same VA advantages like no down payments. This is often the case among active duty service members who purchase homes according to the base at which they’re stationed. Sometimes they may be permanently stationed somewhere else and so will have to sell the home or buy a second one.
VA Occupancy Requirements
Before we go any further, let’s refresh our memories concerning the VA’s occupancy requirements. In order to take out any VA loan other than an IRRRL, you’ll need to state your intention to occupy the property as your primary residence. If you’re deployed, this requirement is still fulfilled so long as your spouse or any dependents are still living in the home. If you’re single (with no children) and deployed, you’ll have to prove that, for a major portion of the year, the home will be your primary residence.
Can I Use My VA Entitlement a Second Time?
So, as you may have gathered by now: yes, you can use your VA entitlement a second time. However, in order to do so, you’ll have to go about it the same way you did before—by applying and qualifying for the loan. For instance, you’ll need to show that you’re up to date on your current mortgage payments and that you have enough assets/income to handle a second mortgage.
The VA set up the second-tier entitlement in order to help veteran and military families who move a lot; it allows them to buy and move into a new house before they’ve sold their first one. Second-tier entitlement carries a minimum amount of $144,001, which can include the VA funding fee if you finance it into the life of the loan. However, this minimum amount cannot include energy efficiency improvements.
Here’s something else you should know about VA entitlement: it’s lifelong, meaning it can be replenished in full once your loans are paid off. In other words, once you own a home outright, you can request a new VA entitlement, usually the same amount you had before, and continue to take out as many VA loans as make sense in your situation. You’ll need to sell the paid-off home in order to get your entitlement restored, unless you want to keep it as a rental or vacation property.
Will I Need to Pay the Funding Fee Again?
Unless you are receiving disability pay, you’ll be required to pay the VA funding fee at the close of every new loan. However, the funding fee amount does change depending on how many times you’ve used your VA entitlement, whether it be your first or subsequent use.
What If I Foreclosed on My First Home?
If you’re a veteran who foreclosed on a VA-lent home, the second-tier VA entitlement will allow you to continue using the VA loan program to get another home as early as 2 years after foreclosure. Though in the case of foreclosure, you will likely need to apply for your entitlement to be restored through the VA. Some lenders may even offer you a loan earlier than 2 years. Your Certificate of Eligibility (COE) will tell you how much VA entitlement you have at your disposal. If the amount is low, you may be required to make a down payment. Still, the amount you’d have to put down in this case is usually far less than what you might be required to put down on a conventional or FHA loan.
Giving Back to Veterans
We at Low VA Rates are excited about the VA loan program; we believe it’s been set up to benefit the borrower and give back to a community of people who have given so much of themselves to this country. Through articles like these, we hope to reach as many veteran home buyers as we can, and educate them on what benefits are available to them and how the VA loan program can improve and simplify their financial lives. To learn more about VA loans, or to get started on an application, visit our website, or give us a call at 866-569-8272. We’d love to hear from you!