Can You Do a VA Loan on a Second Home?

A VA loan is a mortgage option backed by the U.S. Department of Veterans Affairs (VA), available to eligible service members, veterans, and surviving spouses. This program aims to help them purchase a home with favorable terms, often requiring no down payment and competitive interest rates. VA loans are generally not intended for second homes or investment properties. Instead, they are specifically designed to help individuals acquire a primary residence.

Understanding the Primary Occupancy Rule

The fundamental principle governing VA loans is the requirement that the property financed must serve as the veteran’s primary residence. The concept of “owner-occupancy” forms a cornerstone of VA loan eligibility, emphasizing that the benefit is for the veteran’s personal use. Borrowers are typically expected to move into the home within a reasonable timeframe, generally considered to be 60 days after the loan closing. The VA does offer some flexibility and exceptions for certain circumstances that might temporarily delay immediate occupancy.

Establishing Your Primary Residence

The VA employs various methods to determine and verify a borrower’s primary residence status. A key step involves the veteran signing a certification of intent to occupy the home as their primary dwelling. This document is a crucial part of the loan application, affirming the borrower’s commitment to the occupancy requirement.

Lenders may also request documentation to confirm actual occupancy after closing. Common forms of verification include providing recent utility bills at the new address or updating a driver’s license or voter registration. The VA may conduct spot checks or require lenders to periodically verify occupancy status, especially during the first year of the loan. The overarching expectation is that the veteran genuinely intends to live in the home as their main dwelling.

Qualifying Situations for VA Loan Use

While VA loans are primarily for principal residences, specific situations allow for their use even if a property might initially appear to be a second home. This is permissible when the property will definitively become the veteran’s new primary residence or meets particular multi-unit criteria.

Veterans who are relocating or experiencing a change of primary residence can utilize a VA loan to purchase a new main dwelling, even if they currently own another property. For instance, if a service member receives new orders to a different duty station, they can use their VA loan benefit to acquire a home in the new location, provided they intend to occupy it as their primary residence. After paying off the original VA loan, veterans can apply for a one-time restoration of their entitlement to use the benefit again for a new primary residence.

Another qualifying scenario involves the purchase of multi-unit properties. A VA loan can be used to acquire a property with up to four units, as long as the veteran occupies one of those units as their primary residence. The remaining units can then be rented out, potentially generating income that can help offset mortgage payments. However, lenders may require the borrower to have sufficient reserves or demonstrate rental management experience before considering projected rental income for loan qualification.

Some VA refinance options also align with the primary occupancy rule, even if they involve changes to an existing loan. For example, a VA cash-out refinance typically requires the borrower to certify occupancy for the new loan. Conversely, a VA Interest Rate Reduction Refinance Loan (IRRRL) generally only requires certification that the home was the primary residence during the original VA mortgage.

Other Options for Second Home Financing

Since a VA loan is generally not an option for purchasing a true second home, other financing avenues are available. Conventional loans are a common choice for financing second homes. These loans typically require a higher down payment, often ranging from 10% to 40% of the purchase price, and may necessitate a stronger credit score than VA loans. Interest rates on conventional loans for second homes can also be slightly higher compared to those for primary residences.

For those with substantial liquid assets, a cash purchase eliminates the need for loan financing altogether. Another strategy involves leveraging the equity in an existing primary residence. Home equity loans and Home Equity Lines of Credit (HELOCs) allow homeowners to borrow against the value they have built in their current home. These funds can then be used to cover a down payment on a second home or, in some cases, the entire purchase. However, utilizing home equity for a second property introduces additional debt and carries risks, including potentially higher interest rates and the primary residence serving as collateral.