The VA loan carries many myths. The largest of them, however, deals with the VA entitlement. Many people believe you can only have 1 VA loan at a time. They believe once you use your entitlement, it’s gone. However, it’s not. There are ways you can have multiple VA loans at a time. Some borrowers can hold 2 VA loans at the same time if they meet certain circumstances.
How Entitlement Works
First, you must understand VA entitlement. It’s how veterans secure VA funding. Without it, you couldn’t qualify for a VA loan. Entitlement means the VA will guarantee a loan in your name. Basic entitlement equals $36,000. This means the VA will guarantee 4x this amount or $144,000. No, you aren’t stuck purchasing a home for $144,000 though. There is another type of entitlement called bonus entitlement.
You don’t have to do anything special to receive bonus entitlement. It’s available to eligible veterans. Right now, it’s equal to $70,025. This gives you total entitlement of $106,025 or a purchase price of $424,100. This is also the maximum conforming loan amount for this year.
Now, you don’t have to use the entire amount of your entitlement. You can determine how much you use by dividing the purchase price by 4. Let’s say you purchase a home for $175,000. This means you used $43,750. Subtract that amount from the total $106,025 and you still have $62, 275 left.
Using Your Remaining Entitlement
Now you know you have the entitlement left. How do you use it? How do you have 2 VA loans at the same time? You must meet specific circumstances.
If you are still active in the military and they move your base you may qualify. Some military members prefer to keep their current residence. They often rent it out and purchase another home closer to the base. This way when they complete their service at that base, they can move back to their original home.
Veterans may also use this option. The veteran must live in the home they purchase with the new VA loan. Keep in mind, the amount of the purchase price is also capped. They can only borrow up to 4 times the amount of the remaining entitlement. The exception to the rule is if the borrower puts money down on the home. Let’s say you have $25,000 left in entitlement. This means a $100,000 mortgage. If you want to purchase a $150,000 home, you’d have to put $50,000 down. This leaves you with a $100,000 mortgage. This may defeat the purpose of the VA loan, though, so it may or may not make sense for you.
Qualifying for 2 VA Loans at Once
Just because you have entitlement doesn’t mean you qualify for a VA loan, though. Just like any other loan program, you must personally qualify for the loan. Here are some things you should consider:
- Credit score – The VA is unique because they don’t have minimum credit score requirements. Most lenders, however, won’t allow scores below 620. Some may even require higher credit scores. Just like with any other loan, the higher the score, the better your chances of approval.
- Debt ratio – Again, the VA is unique. They don’t have maximum debt ratio requirements either. In general, your total debt ratio shouldn’t exceed 41%, though. You may find lenders that grant exceptions. The VA focuses more on disposable income. We’ll discuss that below. It’s a good idea to stick to the conventional debt ratio requirements, though. No more than 28% of your income should cover your housing payment. Also, no more than 36% of your income should cover your total debt payments.
- Disposable income – Money left over after you pay your monthly obligations is disposable income. You need certain amounts depending on the area you live. This is a hard and fast rule the VA requires. For a family of 4, you need at least $1,025 left if you live in the Northeast. If you live in the South, though, you only need $1,003.
- Pass the VA appraisal – The VA appraisal has Minimum Property Requirements. Basically, the VA wants to know the home is safe and sanitary. The purpose of the program is to provide suitable housing for those that served our country. If a home doesn’t meet the MPRs, you can’t use VA funding on the home.
- Have a Certificate of Entitlement – In order to qualify for the COE, you must serve enough time. This means 181 days during peacetime or 90 days during wartime. If you serve in the Reserves or National Guard, you must serve 6 years before you are eligible.
Just like any other loan, you must prove you can afford the VA loan. They provide 100% financing, which is risky for any lender. In fact, many lenders have additional requirements on the loan. The VA doesn’t fund the loan – the lender does. It’s the lender’s money at risk. Even though the VA guarantees the loan, the lender still faces a loss. They minimize these losses by adding requirements onto the loan program.
If you want 2 VA loans at once, you face additional requirements. Lenders may pay closer attention to your debt ratio. You must prove you can afford both mortgage payments at one time. If you have many other debts, this may prove to be difficult. Again, the 41% total debt ratio may be enforced. You must also meet the disposable income requirements despite having 2 mortgages.
Should You have 2 VA Loans?
Now the question is, should you have 2 VA loans at once? It depends on your circumstances. Most borrowers who do this have renters in the first home. They then use the rental income to help them qualify for the 2nd VA loan. Using rental income on a mortgage application is tricky, though. You must prove you have experience as a landlord. You must also prove the income will continue for the near future. An executed lease and claiming the income on your tax returns is the best way to make this happen.
Of course, every situation is different. Make sure you are comfortable with the rent you receive and that it covers your mortgage payment. Also, make sure you can conformably afford the 2nd mortgage. You should plan for the worst. What if your renters stopped paying? Could you afford both mortgages? This is the only way you could prevent default.
2 VA loans at once are possible. You must meet additional requirements, though. Talk to a few VA lenders to see what they have to offer. Not every lender will allow you to have more than 1 VA loan at a time. The VA does allow it in certain circumstances, though. Shop around and find a lender willing to provide you with the 2nd loan. Make sure you shop the various rates and closing fees too. This way you can save the most money on your 2nd VA loan. The 2nd time around, the VA charges a higher funding fee, so the loan will be more expensive. Consider those when deciding if 2 loans is a good idea for you.