A Department of Veterans Affairs (VA) loan is one of the best ways active or veteran military service members can secure a mortgage. With a VA loan, veterans can get the money they need and not have to make a down payment.
And your VA loan is a benefit you can reuse. You can use your VA loan to purchase a second home – but you’ll need to meet certain requirements we can help you navigate.
Can a VA Loan Be Used for a Second Home?
Yes, you can use a VA loan to buy a second home, but it’s important to know what qualifies as a second home. According to the VA, the home must be your primary residence, a property you “intend to personally occupy” as your home. The home cannot be used as an investment property.
If the point of the property is to generate income, the VA won’t consider the property a second home. The only exception to that rule is if you buy a multifamily or multiunit property with up to 4 units and live in one of the units.
Understanding Your VA Loan Entitlement
If you qualify for a VA loan, you qualify for a VA loan entitlement. That’s money the VA will guarantee up to $36,000 or 25% of the conforming loan limit in your county, whichever is higher. This entitlement lets the lender forgo the down payment on your primary residence or second home.
Of course, whether you can use the entitlement to purchase a second home will depend on the situation.
Some veterans may use their full benefit, while others may use a portion of their benefit. Some may never use their entitlement.
Full vs. Remaining entitlements
If you want to use a VA loan to buy a second home, it is important to understand how much of your VA entitlement is still available to you.
The standard VA loan entitlement of $36,000 or 25% of your county’s conforming loan limit is available to every qualifying veteran. But your use of the entitlement becomes a bit more complicated when you are buying a second home.
If you want to use your entitlement to buy a second home but you used your entitlement (or part of it) to buy your first home, you won’t be able to take advantage of the entire entitlement amount. You can only use your remaining entitlement balance.
Restoring your VA entitlement
Also, you’re not allowed an unlimited number of uses for your VA entitlement. If you already used your VA loan entitlement, you can “restore” your entitlement once, allowing you to reuse your loan.
To restore your entitlement, you must fill out VA Form 26-1880. If you qualify, you will receive a Certificate of Eligibility, and your entitlement will be restored.
How you might lose your VA entitlement
You may lose your VA entitlement if you’re facing foreclosure or a short sale on your first home.
In some cases, you may lose your entitlement forever. In other cases, the entitlement can be restored, but the process can be challenging and lengthy.
Getting a VA Loan for a Second Home
Now that you understand how the entitlement works, you may be wondering how to get a VA loan for a second home.
Getting a second VA loan will be similar to getting your first VA loan. To qualify for the loan, you must be in good standing with the VA and meet their basic requirements for a Certificate of Eligibility. You’ll also want to consider the following:
The impact of the VA funding fee
After you get your first loan from the VA, you may pay a higher VA funding fee.
If you’re buying a home with a VA loan for the first time and make a down payment that’s less than 5%, you’ll pay a VA funding fee of 2.3%. If you are a repeat VA loan user, the funding fee will be 3.6%.
Let’s say you’re a first-time home buyer, and you found a $400,000 home you want to purchase. Your VA funding fee (which would be 2.3%) would add $9,200 to your closing costs. If you buy a second home at the same price, you would pay a 3.6% funding fee, which would add $14,400 or $5,200 more.
Because the VA funding fee is a percentage of your total loan amount, it could create a high financial hurdle for some home buyers. Fortunately, if you can’t or don’t want to pay the fee upfront, you can fold it into your mortgage.
The VA has no minimum credit score for VA loan users, but many lenders do require higher credit scores for a second home compared to a primary residence. At the very least, improving your score might reduce the interest rate you’re offered.
As a rule, lenders prefer a higher down payment for a second home compared to a primary residence. Even with a full entitlement, making at least a partial down payment may be necessary to qualify for a VA loan on a second home. At the very least, it improves your chances of getting a better interest rate.
A Second Home Remains Within Reach
You need to jump through a few hoops to get a second home loan from the VA. But every successful leap will be well worth its reward.
U.S. Department of Veterans Affairs. “VA Home Loan Limits.” Retrieved November 2022 from https://www.va.gov/housing-assistance/home-loans/loan-limits/
U.S. Department of Veterans Affairs. “About VA Form 26-1880.” Accessed November 2022 from https://www.va.gov/find-forms/about-form-26-1880/
U.S. Department of Veterans Affairs. “VA Funding Fee and Closing Costs.” Retrieved November 2022 from https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/