The VA loan offers veterans a flexible way to buy a home. So what’s the catch?
You can’t buy a vacation home or an investment home with it. You can only buy a primary residence with your VA loan benefits. You may be able to get around this rule with a few exceptions, but generally, it won’t be to buy a vacation home.
The VA Requirements
You may wonder how the VA would know what you are purchasing the home for, right? They do check, though. As a part of the closing process, you have to certify that you plan to occupy the home as your primary residence. The VA lender would also know if you have another address where you receive your bills that there is a chance you won’t use the home as your primary residence.
There’s no getting around it as the VA requires that you occupy the home as your primary residence within 60 days of closing on it. Now, the VA does have relaxed guidelines on what they consider your ‘main home.’ Basically, they require you to live in the home for at least six months and one day out of the year. If you are in the military still, your spouse can satisfy this requirement for you.
Getting Around the Rule
So if you have to certify that you’ll live in the property as your primary residence, how do you get around the rule?
It’s a one-time exception that the VA allows. You must already have VA financing on the home. If you decide that you are going to move, but you want to keep the home, you may be able to refinance the loan with the VA streamline refinance. This loan doesn’t require you to certify that you will live in the property as your primary residence. If you ask the VA for a one-time exception, you may be able to use your remaining entitlement to purchase another property that will be your primary residence.
If the home you owned before that now has the VA streamline loan on it can serve as your vacation home, you can get away with having VA financing on a vacation home. This isn’t the norm, though, and you do have to be able to get the VA’s one-time exception. Typically, the VA will allow the exception if you meet any of the following:
- You outgrew your home because of an increased family size
- You changed jobs or your job relocated you and it’s too far away from the home to commute
- Your situation changed for any other reason and you can prove it to the VA
The Typical Options for a Vacation Home
The typical veteran won’t use VA financing for a vacation home. Instead, they will use conventional financing nor subprime financing. This is because most government programs, including the VA, USDA, and FHA loans don’t allow you to use the financing to purchase a vacation home.
If you have great credit and a decent debt ratio, you should try conventional financing. Fannie Mae loans don’t have restrictions on what you can do with the home. Of course, you’ll need to be able to qualify for the loan with the mortgage on your primary residence as well as the mortgage on the vacation home, which can be a little difficult since the Fannie Mae guidelines require a maximum 36% total debt ratio.
Your other option is the subprime loan. You can get this type of loan from any portfolio lender that keeps the loans on their books. Each lender will have different requirements, fees, and interest rates. Don’t let the term ‘subprime’ scare you, though. If you have the money to qualify for a vacation home, you can find a lender that offers decent rates and closing costs. They are subprime because they don’t follow any of the standard mortgage regulators, such as Fannie Mae, FHA, or VA loans. Everything else about the loans is created equal.
While technically you can’t get a VA loan for a vacation home, there are ways around it. If you can’t get the VA one-time exception, it’s best if you try another route and save your VA benefit for your primary residence.