Most people know that the VA loan is only for owner-occupied properties. But did you know that there is a way to use the VA loan to buy a second home?
It’s a loophole many veterans don’t know about, many of which who could have used it. Keep reading to see how you too can buy a second home with your VA benefits.
It Depends on Your Entitlement
When you buy a home with your VA benefit, you use what’s called entitlement. The VA provides you with enough entitlement to purchase a home for the maximum conforming loan limit. Today that means a loan of $453,100. Because the VA guarantees your loan for 25% of the amount borrowed, each veteran starts with entitlement of $113,275.
When you buy a home, the equivalent entitlement is deducted from your total benefit. Let’s say you bought a home for $200,000. You use $50,000 in entitlement to purchase that home. This leaves you with $63,275 in entitlement or enough for a $253,100 loan.
If you meet the guidelines to buy a second home, you can buy one for as much as $253,100 and not make a down payment. Now let’s look at what guidelines you must meet in order to buy that second home.
The Net Tangible Benefit of Buying a Second Home
The VA needs to make sure that there is a net tangible benefit for you to buy the second home. In other words, they want to know that there is good reason for you to buy another home. If you don’t benefit from the purchase, you may end up defaulting on it without really caring.
The possible net tangible benefits for buying a second home with a VA loan include:
- Moving to a home that is more feasible for your family size – If you’ve outgrown your current home, this is a net tangible benefit the VA stands behind
- Buying a smaller home – This may seem backward, but some people need a smaller home due to becoming empty nesters or financial difficulty
- Moving closer to your job – If you live far from your job or your job relocated you, buying a home with a shorter commute can cut down on expenses, stress, and time spent in the car, all of which are a net tangible benefit
- Buying a home out of state for you or a spouse – If your job or your spouse’s job relocated them out of state, you may want to purchase a home there so you or your spouse has a comfortable place to spend their time when not at work
The Requirements for Buying a Second Home
Once you establish that there’s a net tangible benefit, you must make sure you meet the requirements for buying the second home:
- You will occupy the home at least six months out of the year. Either you or your spouse can satisfy this requirement, but no one else in your family can satisfy it.
- You paid off your original VA loan on your first home. You may be able to keep the home, but the VA loan must be paid in full unless you meet the requirements for an exception.
You meet the guidelines for the exception if you are forced to move due to a job relocation or outgrowing your home, but you want to keep the original home to rent out or use as your retirement home. If you refinance this home with the VA streamline refinance, you may be able to use your remaining entitlement on the second home.
Buying a second home is possible with the VA benefit, but you’ll have to make sure you cover all of your bases with your VA lender. Make sure they understand this is your second home and be honest with your plans for the original home with the original mortgage to make sure you are doing everything right.