Can I Buy a Second Home With a VA Loan?
Clarify if a VA loan can finance a second home. Understand the rules for a new primary residence, including occupancy, entitlement, and eligibility.
A VA loan helps eligible veterans, service members, and surviving spouses achieve homeownership. This loan program offers terms like no down payment requirements and competitive interest rates. VA loans are primarily intended for a borrower’s main home, not for vacation properties or investment endeavors. The strict primary residence rule generally limits using a VA loan for a “second home” in the sense of a vacation or rental property. This article clarifies how a VA loan can be used for a subsequent primary residence.
Understanding VA Loan Occupancy Rules
The VA loan program requires the financed property to serve as the borrower’s primary residence. This means the home must be where the borrower, or their spouse, intends to live. The Department of Veterans Affairs expects borrowers to occupy the property within a “reasonable time” after closing, usually within 60 days. Exceptions can be made for active-duty service members who are deployed or temporarily stationed elsewhere, allowing for delayed occupancy.
VA loans are prohibited for vacation homes, investment, or rental properties. A veteran might purchase a new primary residence with a VA loan while retaining a previous one. If a service member receives Permanent Change of Station (PCS) orders or experiences a job relocation, they can use a new VA loan for their new primary home. They may rent out their old VA-financed property after meeting initial occupancy requirements.
Multi-unit properties (duplexes, triplexes, or fourplexes) can be purchased with a VA loan, provided the borrower occupies one unit as their primary residence. The remaining units can be rented out, generating income. A spouse or dependents can fulfill the occupancy requirement if the veteran is deployed or unable to occupy the home personally.
Using Your VA Loan Entitlement for Another Home
VA loan entitlement is the amount the Department of Veterans Affairs guarantees on a borrower’s home loan. There are two types: basic entitlement ($36,000) and bonus (or second-tier) entitlement for loans exceeding $144,000. Borrowers with full entitlement generally have no loan limit, with the VA guaranteeing up to 25% of the loan amount.
If a borrower previously used their VA loan benefit, they may have “remaining entitlement.” This occurs if a previous VA loan has not been fully paid off, or if the loan was paid off but the property was retained, or in cases of foreclosure where the VA was not fully reimbursed. To calculate remaining entitlement, subtract the entitlement already used (25% of the original loan amount) from the maximum entitlement available in their county.
Restoring entitlement allows a borrower to access their full VA loan benefit again. Full entitlement restoration occurs when the original home financed with a VA loan is sold and the loan is paid off. Alternatively, if the original VA loan is refinanced into a non-VA loan and the property is retained, full entitlement is also restored. A one-time partial restoration may be available if the original loan is paid off but the home is retained, allowing some remaining entitlement for a subsequent primary residence. Any property purchased with remaining or restored entitlement must meet the primary residence occupancy requirement.
Qualifying for a Second VA Loan
Borrowers must satisfy financial and credit requirements to qualify for a second VA loan. Lenders evaluate a borrower’s financial capacity. The Department of Veterans Affairs does not set a minimum credit score, but most lenders require a score of at least 620. Higher loan amounts, such as those exceeding $1 million, may require a higher credit score.
Lenders also assess the debt-to-income (DTI) ratio. While the VA does not set a maximum DTI, it advises lenders to scrutinize applications exceeding 41%. Borrowers with a DTI above this threshold may still qualify if they have compensating factors, such as high residual income or excellent credit history.
Residual income is an important factor, representing discretionary income remaining after major monthly expenses are covered. The VA uses residual income to ensure borrowers have sufficient funds for daily living. Requirements for residual income vary based on geographic region, family size, and loan amount. If a borrower’s DTI is above 41%, they need to exceed their regional residual income guideline by at least 20%. Lenders verify stable income and employment, and borrowers should prepare to provide documentation like pay stubs and tax returns.
Applying for a VA Loan for a Second Home
Applying for a VA loan for a subsequent primary residence involves several steps. The first step is to obtain a Certificate of Eligibility (COE), which confirms military service eligibility and entitlement. Borrowers can apply for a COE online through the VA eBenefits portal, by mail, or have a VA-approved lender pull it directly from the automated system.
After securing the COE, find a VA-approved lender. Borrowers should then seek pre-approval, which provides an initial assessment of the loan amount they qualify for. A pre-approval letter signals to sellers that the borrower is a serious and qualified buyer.
The borrower can begin searching for a property that meets VA requirements. Once a suitable property is found, an offer is made and a purchase agreement signed. The property will then undergo a VA appraisal to ensure it meets minimum property requirements (MPR) and to determine its value. Finally, the loan enters the underwriting phase, where the lender reviews all submitted documentation, including income and employment verification, leading to final approval and closing.