Finwower is a leading advertising-supported and independent comparison service. Finwower receives a part of the revenue as compensation from all the offers that you see on the website from various companies. Depending on the compensation, you will see where and how the products appear on the website. For instance, you can look at how the order appears in the listing category. Of course, many other factors impact the appearance of the products, like the credit approval likeliness of the applicants and the rules of the proprietary website. Of course, it should also be understood that you will not find all the available credit or financial offers available today at Finwower.
All the reviews you see have been prepared by the staff of the Finwower. Yes, these opinions are received by the reviewer and have not been approved or reviewed by other advertisers. It means that all the reviews you see are unbiased and presented accurately, including the credit fees and rates. If you are looking for the latest information, it is suggested that you head over to the top of the page and visit the bank's website to check the data. All the credits at Finwower are determined from the FICO® Score 8; this is one of the many types of credit scores you will find in the market. When the lender is considering your credit application, they may use various types of said credit score to determine whether you qualify for the credit card or not.
How to get a second VA mortgage
September 29, 2023
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here's how we make money.
You have already purchased a home with a VA loan. Now you may be wondering if you are eligible for a second VA loan. The answer is yes, but before you apply it is good to know how the benefit you are eligible for works, how much you will pay in finance charges, and a number of other considerations.
How many VA loans can you apply for?
One of the great advantages of a VA loan is that it does not require a down payment. As long as you have residual entitlements (see below), access to a VA loan is a lifetime benefit. There are several scenarios that usually involve an additional VA loan:
Selling your current home and buying a new one
If you have already purchased a home with a VA loan and then sell that property, you restore your rights and can purchase your next home with a new VA loan. In this case, you can take out as many VA loans as you want during your lifetime, as long as you sell each property and move.
Refinancing a VA loan with another one
Refinancing a VA loan ends the current loan and starts a new one. With a cash-out refinance, you can liquidate the equity in your home for cash. If you are simply looking for a better interest rate, you can apply for a VA refinance with interest rate reduction (IRRRL), also known as a streamline refinance.
Using VA loans for two different homes
It is possible to obtain a second VA loan for another home. This often happens when an active duty service member receives a permanent change of station order. However, a licensed VA lender must approve multiple loans. In fact, you must prove that you can afford to repay both loans at the same time. You will also need to confirm that you have sufficient entitlement to purchase the home you want.
What is VA Loan Entitlement?
The VA Loan Entitlement is the amount that the Department of Veterans Affairs (VA) guarantees on a home loan. It determines the amount you can borrow before you have to make a down payment. Entitlement protection encourages lenders to offer VA loans with lower rates, no down payment and easier eligibility requirements. Here's an overview:
Full protection
You are fully protected if you never purchased a home with a VA loan, if you paid off a previous home with a VA loan and sold it, or if a home with a VA loan was foreclosed on or sold short, but you paid off the loan in full. As a borrower, full entitlement simply means that you do not have to make a down payment.
For mortgage lenders, however, entitlement refers to the amount the VA promises to pay them if you stop repaying the loan. For loans under $144,000, the VA guarantees lenders up to $36,000. For loans over $144,000, the VA guarantees up to 25 percent of the loan amount. There is no limit to the loan amount, but that does not mean you will be entitled to an unlimited amount. Ultimately, the lending institution determines the loan amount based on your creditworthiness and financial situation.
Partial or reduced entitlement
If you have partial entitlement, your situation is a little more difficult. There are several situations in which you have reduced entitlement, such as if you have a VA loan that you are still repaying or about to repay, or if you are refinancing a loan on a home you still own. As mentioned above, the base amount is $36,000 or 25% of the loan amount. This "25% of the loan amount" applies up to the conforming loan limit. In 2023, this limit is $726,200 in most regions.
In addition to the base fee, there is also a bonus fee, which is also 25% of the $726,200 limit. Suppose you have a VA loan of $200,000, which means you have used $50,000 (25%) of your entitlement. Now you want to take out two VA loans. You have already utilized $50,000 of your entitlement. You have a premium of $181,550 (25% of the conforming limit), but you must first subtract the $50,000. That leaves $131,550 for the second loan.
This does not mean that you can only borrow $131,550. It is simply the amount that the VA guarantees to pay the lender in case of default. To calculate the loan limit, multiply $131,500 by four to get $526,200. This is the maximum amount you can borrow without making a down payment.
If you want to buy a house that costs more than the loan limit, you will have to make a down payment equal to 25 percent of the difference between the price of the house and the loan limit. If the house costs $550,000, for example, subtract $526,000 to get the difference of $24,000. Multiply this amount by 25% to get $6,000, the down payment you will have to make on the loan.
How to get a second VA loan
Obtaining a second VA loan will likely be very similar to obtaining the first VA loan. Here is an overview of the main steps to take:
- Apply for a certificate of eligibility (COE). This certificate tells lenders that you are qualified to receive a VA loan and also helps you understand how much is available of your allowance. You can get it online from the VA benefits portal or at your regional service center. You may also need your discharge document.
- Decide whether you want to reinstate your entire allowance. If you intend to purchase a new home, you may consider selling your current home to get the full allowance.
- When refinancing, decide what is more important: more money or less work. If you are considering refinancing your mortgage, ask yourself what is best for you: a cash-out refinance or a VA IRRRL loan.
- Get your finances in order. Although the VA does not require a minimum credit score, VA lenders usually do. Review your credit report, pay off credit cards, and take other steps to show that you can afford the new mortgage payments.
Second, finance charges for a VA loan
Finance charges are an unavoidable expense for most VA borrowers, and you may end up paying more for your second loan. If your down payment is less than 5% of the purchase price, the second time you take out a VA loan (and all subsequent times), the finance charge is 3.3%. If you can make a down payment of more than 5% or 10%, the finance charge is reduced to more affordable levels of 1.5% or 1.25%, respectively.
Buying or renting using the right to housing
What happens if you rent your home while trying to buy another one with a VA loan?
"This can happen if, for example, you move to another location but do not want to sell your current home. In this case, you decide to rent your home and buy another one," explains David Reischer, a New York attorney.
But there is a problem: You cannot convert your primary residence into a rental property and buy a similarly sized property in the same location. The second home must be larger to allow the family to grow or be located in a different area.
"You will not be able to use rental income to reduce your debt-to-income ratio when applying for a second VA loan," explains Yvette Clermont, mortgage consultant at Novus Home Mortgage, based in Waukesha, Wisconsin. But rental income can help offset the mortgage payment, helping you qualify for the second VA loan.
Restore eligibility for a VA mortgage
Remember: You have an eligibility limit, but you can restore your eligibility by selling your home and paying off the VA loan in full. If the loan is simply paid off or refinanced and you still own the home, the eligibility amount remains tied to the home.
Fortunately, there is an exception: you can apply for a one-time reinstatement of eligibility, even if you have not complied with the VA mandatory sale rule. Suppose the buyer of your home for sale is a veteran who takes over the existing VA mortgage (known as "assumption"). You can ask this person to replace his rights with the same number of rights you originally had. If the buyer does not agree, the entitlement used to purchase the house will remain tied to the property until the new owner pays off the loan in full.
Loss of right to VA loan
It is possible to permanently lose the right to the VA loan. This can happen if you default on the VA loan, the lender forecloses on the house and sells it for less than the amount owed, and the VA must repay the lender. In this case, the VA payment to the creditor is deducted from your entitlement and you cannot recover it.
This also happens in the case of a short sale, where the house is sold at a loss. Unfortunately, you cannot use the one-time entitlement recovery benefit for a short sale or foreclosure.
You can use VA loan benefits several times during your lifetime. Depending on the amount of entitlement, you can have multiple homes with VA loans at the same time. If you are ready to start the process, apply for a COE and start looking for lenders that offer the best rates.
