Have you ever (wrongly) heard that you can only use the VA loan once? In my longer article about the VA loan I tell how I have missed out on over $10,000 due to a lender talking me out of using the VA loan because he said I couldn’t use the it more than once. Today, I want to show you how to buy a second home with the VA loan, in order to help you avoid this same mistake.
These are the most common justifications you can use to buy a second home with the VA loan:
- Moving Due to Work (PCS, or After the Military)
- Upgrading to a Larger Home Because of A Growing Family
- Purchasing a Smaller House Due To Financial Distress, Divorce, Or Loss Of Dependents
- After Selling The First Home You Purchased With the VA Loan
- After Refinancing Your Home Into a Conventional Loan
- Other Stipulations To Use The VA Loan On Second Home
- The Entitlement Issue
- How Your First VA Loan Affects Your Entitlement
- One Time Entitlement Recoup
Moving Due to Work (PCS, or After the Military)
The Department of Veterans Affairs understands that you will get moved around a lot while in the military. For this reason, you are able to use the VA loan again, when you PCS.
The same holds true if you are out of the military, and get relocated due to your job, assuming you move over 50 miles away. Obviously, if you quit working at McDonalds, and begin work at Burger King in the same town, you cannot buy the home next door to your current home.
The Intent of the VA loan is to help service members get into homes, not buy entire neighborhoods for 0% down, haha.
Upgrading to a Larger Home Because of A Growing Family
If you have kids on the way, you can upgrade to a larger home. For example, if you live in a 2 bed/1 bath home, and have a second or third kid on the way. In this instance you would be able to use the VA loan again in order to upgrade to a three or four bedroom home!
Purchasing a Smaller House Due To Financial Distress, Divorce, Or Loss Of Dependents
In the same vain if you find yourself (unfortunately) in financial distress, divorced, or with fewer dependents than when you purchased the current home you can purchase a smaller home to downsize.
I hope that you never find yourself in any of these situations, but it is nice to know that you can downsize to provide a lower cost-of-living for yourself.
After Selling The First Home You Purchased With the VA Loan
This one is straight forward, but if you sell your home, you can buy another home with the VA loan in your area.
After Refinancing Your Home Into a Conventional Loan
You are also able to refinance your home into a conventional mortgage once you have enough equity in the home (generally 20% but that differs from lender to lender).
If you refinance out of the VA loan you are free to use it again in your area!
Other Stipulations To Use The VA Loan On Second Home
The bottom line Is that if you can articulate why you need to use the VA loan a second time to your lender, and they sign off on it, you will be in the clear! That being said, don’t lie to your lender to “game the game” on this front. Mortgage Fraud is a real thing—and a federal offense—don’t get wrapped up in it!
You should absolutely maximize your VA loan benefit, but do it ethically!
The Entitlement Issue
When you use the VA loan for the first time there is no longer a limit to how much money you can borrow. That being said, for any subsequent purchases, you still have to worry about the VA entitlement amount. This can get a little complex, so hang on tight!
The Department of Veterans Affairs guarantees 25% of the mortgage amount.
If your certificate of eligibility (COE) shows that you have $100,000 worth of entitlement remaining, then you can purchase a house for $400,000 (with 0% down) or more—provided you are able to pay 25% down for the amount of money you go over your remaining entitlement.
For example, if you bought a $500k home with $100k worth of entitlement remaining you would need to pay $25k down.
$100k eligibility = $400k purchase, plus 25% down toward the extra $100k being borrowed.
The COE entitlement limits will vary depending on where you live in the nation.
How Your First VA Loan Affects Your Entitlement
Let’s say that your first VA home loan was $200k, which means you used $50k worth of your COE. If you’re looking to purchase your second home in San Diego county—where the 2021 VA loan limit is $753,250—you will have a remaining COE of $138,312.5 which would allow you a maximum purchase price of $553,250 before you would be required to put any money down.
$753,250 / 4 = $188,312.5 COE – the $50k entitlement used on your first home = $138,312.5 COE (or $553,250 in purchasing power before you would be required to put 25% down for every additional dollar you borrow).
Here is information about the VA loan Limits by county for 2021.
One Time Entitlement Recoup
If you sell your home, you can recoup your entitlement once. This isn’t an automatic process though, like some people believe it is.
The restoration process needs to be done by the veteran, and the paperwork can be done online or by filling out a Request for COE (VA Form 26-1880) to the regional VA processing center.
Residual Income When Buying Your Second Home With the VA Loan
When you move out of your first residence and decide to rent it out, 75% of the gross rental income can be counted toward your debt-to-income ratio.
This is a nice touch because it means that your first home will actually help you qualify for the mortgage on your second VA loan purchase, as opposed to hurting your qualifications. The best thing you can do here is ensure the rental income you generate covers the mortgage payment on your first home.
Ideally, you want it to cover all of your expenses, but at least make sure it covers your mortgage.
This is why you need to buy your home as an investment, instead of just a home.
How To Buy A Second Home With The VA Loan – The Bottom Line
The VA home loan is an incredible benefit, and you should definitely take advantage of it…more than once!
Using the VA loan to house hack is my personal favorite method for beginning your real estate investing journey, and I hope you will take advantage of it.
Yes, you can use the VA loan multiple times. There are stipulations surrounding your specific situation, but you CAN use the VA home loan more than once!