You served our country and earned your VA eligibility for a VA loan. Congratulations! We thank you for your service. You deserve the entitlement to a VA loan and all of the benefits it provides. There might be something you don’t know, though. Generally, VA loans are a one-time deal. You purchase a house using your entitlement and you used up your benefits. This is, of course, unless you sell your home and payoff your existing VA loan. You can have your entitlement restored then. But, there is an exception to the rule as well. If you did not use all of your entitlement on your first home, you may be able to purchase a second home with your remaining entitlement.
The Types of Entitlement
It helps to understand the amount of entitlement you may receive as a veteran. There are two types:
- Basic – Every eligible veteran receives this entitlement. It equals out to a $144,000 loan. The VA guarantees 25% of this amount, which equals $36,000.
- Bonus – The name of this entitlement makes it sound like you have to do something to obtain it. Luckily, everyone is eligible as long as the homes in their area exceed $144,000. Generally, the maximum for the bonus entitlement equals $68,250, which comes out to a loan total of $417,000. This is the maximum conforming amount in most counties.
Unused Entitlement for VA Eligibility
Out of the total $417,000 eligibility you have available, you may not use it all for your home purchase. Let’s say you use $200,000 of the available amount. This means the VA guaranteed $50,000. You have a total of $104,250 to use. This leaves you with $54,250 or a loan amount of $217,000. If you want to use this remaining entitlement, you may be able to do so on a second home.
The Stipulations of a Second Home
Of course, there are stipulations you must follow in order to use your VA eligibility for a second home. Generally, VA loans are for primary residences only. Buying a second home violates that requirement, unless there are certain circumstances at play. These include:
- You purchase a second home because it is located closer to your job. If you still own the first home, you may want to use your remaining entitlement. As long as you intend to live in the second home for at least 6 months out of the year, you may be able to secure VA financing.
- You need a second home to house your spouse who works in another state. Rather than paying hotel fees or renting, you would rather purchase a home. As long as you have remaining entitlement, your spouse can satisfy the VA’s occupancy requirement.
- Your divorce requires you to move out and find housing for yourself. If you still own the original home and it is not a part of the divorce agreement to sell it, you can secure a second home with your remaining eligibility.
The bottom line is that you must prove you will occupy the property. Under no circumstances is the VA loan supposed to be used for an investment home. The program strictly helps veterans secure suitable housing for themselves and their families.
Reusing Your Entitlement
There is a vast difference between reusing your entitlement and using your remaining entitlement. Reusing your entitlement signifies that you paid off your original VA loan and do not own the property. This only happens when you sell the home and payoff the loan. You can then petition the VA to reinstate your entitlement. If you just move out of the home, but you keep the mortgage and the property in your name, you cannot have your entitlement restored. It is still being used.
Using your remaining entitlement, means you use the leftovers of what you have left on your entitlement. If you live in an area where the maximum conforming loan amount equals $417,000, then you likely have the ability to obtain a guarantee up to $417,000. If you don’t use the entire amount on your first home, you may be able to do so with a second home if you meet any of the above exceptions. Remember, this is not a vacation home or investment home – it has to be a home that serves a purpose.
The Net Tangible Benefit
The VA is very big on making sure there is a benefit in everything they provide veterans. You cannot refinance your VA loan with the VA IRRRL program unless there is a benefit – typically saving money every month. The same is true for purchasing a second home with your remaining eligibility. You cannot do so unless you have a net tangible benefit. A few examples include:
- Your family grew and is no longer comfortable in your original home. You wish to purchase a larger house for your family. This is a net tangible benefit.
- If you were stationed somewhere else and commuting back and forth is too difficult, you may be eligible to purchase a second home closer to your new station. The benefit is a shorter commute and less stress on your family.
In the end, you may be able to purchase a second home with your remaining VA eligibility. You just have to talk to your lender to see what they will allow. Your circumstances have to be very clear-cut and the reasons you need the second home must be sincere. If you don’t have proper reasoning or you cannot prove that you will live in the home at least 6 months and 1 day out of the year, then you won’t be eligible. The only exception to this rule is if your spouse satisfies the occupancy requirements for you. Remember, every lender will have different requirements as well. Some may be willing to provide funding for a second home, while others may not be willing to take the chance. Make sure you shop around and find the lender who will work with your situation to make the most of your entitlement.