As a member of the Coast Guard, you are accustomed to moving from place to place as duty calls. Sometimes, that involves packing up and selling your current home and moving to a new location. Other times, you may want to keep more than one property in your name.
How does your VA loan benefit work in this situation? If you used the benefit once, what then? Can you use a VA loan for a second home?
When thinking about a VA loan for a second home, there is a lot to consider. Keep reading to see if this is an option that works for you!
VA Loan: The Basics
A VA loan is a loan backed by the Department of Veterans Affairs that allows active military members, veterans, and surviving spouses to finance a home up to 100% with no down payment and no mortgage insurance.
While several elements are involved in the VA loan process, there are some basic rules.
Service Requirements
There are service requirements you must meet to qualify for a VA loan. You must have served at least:
- 90 continuous days of active duty
- 90 consecutive days during wartime
- 181 days during peacetime
- More than six years in the National Guard or Reserve
Certificate of Eligibility (COE)
You will need a certificate of eligibility (COE) to show that you qualify for a VA loan. You can do this online through the VA’s eBenefits portal or apply by mail with VA Form 26-1880.
Lender Requirements
Once you’ve established VA loan eligibility, you will have to meet lender requirements. While these are usually more lenient for a VA-backed loan, your lender will still review:
- Your credit history and score
- Your debt-to-income (DTI) ratio
- Proof of income and employment history
Now that we have a basic overview, let’s dive into some situations where you may be wondering about a VA loan for a second home.
VA Loan Occupancy Requirements
A quick note about an important rule related to VA loans.
A VA loan is intended for use on a primary residence per VA loan occupancy requirements. You cannot use a VA loan for a home that you don’t intend to occupy for the majority of the year. The requirements also state that you need to occupy the home within 60 days of closing on the property.
What does that mean for you? It means that you can only use a VA loan for a “second primary residence,” meaning you spend at least six months of the year at that residence. But to use a VA loan more than once, you must meet income and lender requirements for both properties and have enough entitlement.
It All Comes Down to Entitlement
VA loan entitlement is the dollar amount the government will guarantee on your VA loan. Entitlement – and how much you have of it – plays a big role in your securing your first VA loan and any future VA loan-related transactions.
Full Entitlement
The entitlement amount is typically either $36,000 or 25% of the loan amount up to the conforming loan limit. If you have full entitlement, there is no home loan limit on loans over $144,000. The government guarantees to pay your lender up to 25% of the loan amount if you default.
There is also a VA bonus entitlement, which can help you finance a home above $144,000 or purchase a second home. In these cases, the VA provides a bonus entitlement worth 25% of the home loan amount. Lenders will let you borrow up to four times the entitlement with no down payment.
You have full entitlement if you meet any of the following:
- You’ve never used your home loan benefit
- You’ve paid a previous VA loan in full and sold the property or repaid in case of a foreclosure
Remaining Entitlement
The remaining entitlement can let you take out another VA home loan. But, in this case, your VA loan limit is based on the county loan limit where you live. If you default in this situation, the government will pay your lender up to 25% of the county loan limit minus the amount of the loan limit you’ve already used.
Keep in mind that if you want to purchase a second primary property, you will usually have to have enough entitlement left over to cover 25% of the overall loan amount since that is what the VA would guarantee on the first loan.
Restoring Entitlement
It is possible to restore your entitlement benefit if you want to use your VA loan for a second home. This process is not automatic – it must be initiated by you!
To be eligible for restoring your entitlement, you must have either sold the home you bought with a VA loan and paid off the mortgage, repaid your loan in full and still own the home, or another qualified veteran has assumed your loan.
How Many Times Can I Use a VA Loan?
The short answer here is multiple times. A VA loan is not a one-time benefit. If you meet eligibility requirements, you can use your VA loan more than once or even have multiple VA loans at the same time.
For instance, if you sell your home and pay off the existing VA loan, you will have full access to the VA loan benefit to purchase a new home. There are also instances where you can keep both homes. If you’ve repaid your previous VA loan in full but kept the home, you have access to full benefits again but you can only do this once.
Special Scenarios
What if you want to keep your current home and use it for another purpose? A rental property or other investment? As previously stated, occupancy requirements exist for a home obtained with a VA loan. However, there are always exceptions!
Investment Property
If you want to use your current home as an investment property, there are a few ways you can go about doing so. But remember: because VA loans are intended for use on primary residences, you cannot buy a property solely to use it as a rental property. Converting it to a rental property is another scenario.
A more common way to generate income and use your VA loan eligibility is to purchase a multiunit property. If you live in one unit as your primary residence, you can rent out the other units as an investment.
Vacation Home
You can also convert your primary home to a second home to use as a vacation destination as long as you can afford both mortgages.
Retirement Home
If you are getting ready to retire, you may be able to purchase a second home to prepare for retirement. While you normally have to occupy the home within 60 days of closing, if you’re on active duty and set to retire within a year, you can provide a move-in date outside this requirement. Your spouse is also able to establish residency first.
Using a VA Loan for a Second Home: Let Us Help!
At SeaWest, we know that you have a lot happening in your life. When you have to move your family, you may want the option to keep both properties and use the VA loan for a second home. We can help you navigate!
Our mortgages are available to Coast Guard members and their families. We can help you at any stage of your mortgage journey. Learn more about our mortgages today!
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