The question of owning two homes at the same time or even selling a first home and buying a second comes up very frequently. In the case of when the first home is financed with a VA mortgage, you’ll need to sell your first home and pay off the existing debt before you can re-use your VA loan entitlement, unless you have enough leftover from the first purchase to make a second, which is unlikely. But there are many other scenarios. For a home that was purchased with a VA loan but is now fully paid off, you are more than welcome to use your VA loan benefits to purchase another home, but in this situation, as well as every other situation regarding purchasing a home with your VA loan benefits, the occupancy requirement must be satisfied. In short, you must be intending to use the home being bought with VA loan benefits as your primary residence, and you need to certify that intent with the lender. If it is found that you are not using that home as a primary residence, there will be severe repercussions with the VA.
But here’s another scenario. Say there’s a potential VA borrower that currently has a home that was financed with a conventional loan (not VA). This borrower wants to sell the house and buy a different home using his VA loan benefits. The borrower is concerned that he would have to sell his existing property first before he can close on a VA loan for another home. This question has several levels. On the first level, that of whether the VA has any restrictions about veterans owning additional properties while they are paying off a VA loan, there is nothing wrong with this situation. In fact, theoretically the borrower could never sell the first home, and open a VA loan for a new home and keep the other property indefinitely. However, in both situations, whether the borrower is intending to sell or keep the previous property, there are other factors in play.
The first is the same one mentioned in the first paragraph; the occupancy requirement must be satisfied. Sure, the borrower can own two properties, but VA rules require that the home that is being financed with a VA loan is the primary residence of the borrower, so of the two homes, only the non-VA financed one could be rented out or turned into a vacation home. The VA-financed home would have to become the borrower’s primary residence. While this doesn’t create a huge problem for many applicants, it still restricts the number of cases where purchasing a second home with a VA loan would be both practical and possible. Alas, if only the occupancy requirement was the only thing that needed to be worried about for this borrower.
The next factor to consider is whether the borrower is still making payments on the first home, or whether it’s completely paid off. If the first home is paid off, the borrower has nothing further to worry about as long as he or she will satisfy the occupancy requirement. If the home is not completely paid off, however, we run into potential snag: one of the most difficult to address. The snag for the borrower is how the payments being made on the first house affect their debt-to-income ratio in regards to purchasing a second home. In layman’s terms, can the borrower really afford two mortgages? For a borrower that is already making a mortgage payment, and expects to continue making it at least partway into the new mortgage, this brings a concern from the standpoint of the lender. The lender will have to closely examine the borrower’s existing debt combined with the new debt of the new mortgage to see if the calculated debt-to-income ratio is still under VA requirements.
The VA limits the debt-to-income ratio to under 40%, and many lenders will be squeamish (and rightfully so) about a borrower’s debt-to-income ratio being close to 40%. For a borrower whose debt-to-income ratio is approaching 40%, it will likely be difficult to secure a VA loan unless there are compensating factors like greater-than-average savings, a fair-sized down payment, or other things that might qualify. For borrowers whose debt-to-income ratio exceeds 40%, it will likely be impossible to get approved for a VA loan.