A VA loan is one of the best loan programs in existence, and it offers a wide variety of benefits to eligible veterans. But there are some common misconceptions surrounding the loan — one of those being entitlement. Many people believe that VA entitlement is a one-time benefit. But that’s not the case. Once you’ve earned the benefit, you will continue to have it your entire life. To explain, entitlement is the dollar amount the VA guarantees to repay the lender, in case a borrower defaults on their loan.
So if you get a VA loan, does that mean all your entitlement is gone? Not necessarily. Is it possible to have two VA loans at one time? The simple answer — yes! In some situations, you can own two homes at once with a second VA loan, if you have enough remaining entitlement.
Before we dive in, let’s take a couple steps back and explain the loan and VA entitlement in more detail.
With the purpose of helping service members finance a home with favorable loan terms, a VA loan is a mortgage loan that’s guaranteed by the U.S. Department of Veteran Affairs (VA). The main perks of a VA loan is that zero down payment is required, and there is no private mortgage insurance.
To qualify for a VA loan, you must have a valid Certificate of Eligibility (COE), and you must meet certain income and credit requirements. Length of service, conduct, and duty status can also affect your eligibility.
You may be able to obtain a COE if you belong to any of the following categories: veteran, active duty service member, National Guard member, reserve member, or surviving spouse.
Entitlement can be confusing for even the most experienced mortgage professionals. But it really just involves a bit of math. In most areas of the country, basic entitlement is $36,000. Additionally, secondary entitlement is $70,025. Adding those together gives you a total of $106,024 for eligible veterans. In higher cost areas, it may be even more.
Additionally, the VA insures a quarter of the loan amount for loans over $144,000. Therefore, you can multiply that entitlement amount, $106,024, by four for a maximum loan amount of $424,100. That’s the total amount qualified buyers could borrow before having to factor in a down payment.
Let’s suggest you currently a own a home in Pensacola, Fla., financed with a VA loan. But you just received orders for a permanent change of station (PCS) to Norfolk, Va. What if you want to keep your existing home in Florida and rent it out, but also want to purchase a new home in Norfolk with a second VA loan?
With enough remaining entitlement, you may be able to secure a second VA loan with little to no money down to purchase a home in your new area.
First of all, you can’t purchase a home with a VA loan with the sole intent of renting it out. However, if you purchased a home with the intent of using it as your primary residence, and then you lived in it a while, you may be able to rent it out later on.
Let’s suggest you borrowed $150,00 for your first home. Since the VA guarantees a quarter of your loan amount, that means you tied up $37,500 of your entitlement. As mentioned before, in most parts of the country, your total entitlement is $106,025. Simple subtraction tells you that you have $68,525 left over entitlement that you have access to. And again, multiply that by four, and you have a total of $274,100. Keep in mind, this is not the max amount you could spend on a home. You would just need to factor in a down payment for anything over this amount.
Acquiring a second VA loan does come with certain conditions.
With most lenders, you must have a renter locked into a lease and a security deposit to offset your first VA loan mortgage payment. While having a renter locked in helps your debt-to-income ratio because it offsets your mortgage payment, unfortunately, any additional rental income can’t be used towards qualifying for your second loan. For example, say your monthly mortgage payment is $800, but you’re going to charge your renters $1,000. That $200 extra can’t be used as additional income to qualify for a second VA loan. Income qualification for secondary properties can vary by lender, so be sure to ask about the necessary underwriting guidelines when applying for a second home.
Additionally, you’ll still need to meet the occupancy requirements of a VA loan, meaning that this new home must be your primary residence. You’ll need to occupy your new home before a certain time period passes (usually 60 days) following your closing.
VA loans are arguably the best loan program available. So if you’re eligible, be sure you know how to take full advantage. If you have questions about keeping your home and buying again, please feel free to contact a mortgage banker.