Can You Use a VA Loan for a Second Home?

You can use a VA loan to purchase a second home, but there are specific rules to be aware of. Read on to discover the key benefits and drawbacks of using a VA loan for a second home, along with eligibility guidelines you must adhere to. This guide also dives into financial considerations to keep in mind when applying for a VA loan for a second home and alternatives to know about if you prefer to explore other mortgage options.

VA Loan for Second Home: An Overview

If you qualify for a VA loan, using it to buy a second home will allow you to access a host of perks not offered with conventional mortgage products.

What is a VA Loan, and Who Qualifies for One?

VA loans are government-backed mortgage products offered by private VA-approved lenders, including banks, credit unions and online lenders. They are insured by the U.S. Department of Veterans Affairs and aim to help eligible veterans, service members, and certain military spouses buy homes with favorable terms.

To qualify, you must meet specific service requirements and other lending guidelines. Another key aspect is entitlement, which represents the amount the VA will guarantee. If you’ve used part of your entitlement on a first home, you may still have the remaining entitlement to apply toward a second VA loan.

Can You Use a VA Loan for a Second Home?

You can use a VA loan for a second home if you meet certain conditions.

Differences Between Primary, Secondary, and Investment Properties

Your primary residence is where you live most of the year. VA guidelines specify that you must occupy the property within 60 days of closing.

If you want to buy a second home or a vacation home, you can use a VA loan if you have a remaining entitlement. The home must also meet VA standards.

But if you’re planning to use a VA loan to buy an investment property, you must look elsewhere, as this isn’t permitted. An exception applies if you buy a multi-unit property and occupy one of the units as your primary residence.

Pros and Cons of Using a VA Loan for Second Home

Advantages

• Competitive rates and terms
• No down payment requirement
• No private mortgage insurance (PMI)
• Flexible credit guidelines
• Limited closing costs

Disadvantages

• Occupancy requirements
• VA funding fee
• A down payment could be required if limited entitlement is remaining

Eligibility for a Second Home with a VA Loan

Here’s what you need to know about using a VA loan to buy a second home.

Eligibility Criteria for Second Home

You’ll need a Certificate of Eligibility (COE) to demonstrate that your service history qualifies you for a VA home loan.

Occupancy Requirements

You must show that you plan to use the second home as your primary residence and occupy it within 60 days of closing. You must also prove that the purchase of a second home is warranted by a job transfer or another pressing need.

Remaining Entitlement

Each time you use a VA loan, you use a part of your entitlement. The remaining entitlement determines how much you can borrow to buy a second home without making a down payment.

Full vs. Partial Entitlement

Full entitlement means the VA backs your entire loan amount up to the county limit.

Partial entitlement occurs when some of your entitlement is tied up in another property. It decreases your borrowing power, and you might need a down payment.

Your second home loan will either use full or partial entitlement. If you have partial entitlement, the lender will calculate how much you can borrow without having to put money down.

Financial Considerations for VA Loan for Second Home

Beyond eligibility guidelines, you also want to keep these financial considerations in mind when using a VA loan to buy a second home.

Funding Fee Structure for Second Home

You’ll pay a funding fee between 0.5% and 3.3% of the loan amount. The exact amount you’ll pay depends on your down payment—the higher the down payment, the smaller the fee.

Loan Limits for VA Loans

The loan limit in your county determines how much you can borrow without a down payment.

Impact of Existing VA Loans on Eligibility

If you have an existing VA loan, it can affect your eligibility for another one. You must repay the first loan in full before getting another.

The amount of entitlement you’ve used will be deducted from the total entitlement available and determine how much you can borrow for your second home.

Credit Score and Financial Stability

Lenders prefer borrowers with credit scores of at least 640, although a 620 may be acceptable to secure funding. Your debt-to-income (DTI) is another factor lenders consider, and it should not exceed 41% to have the best chance of getting approved for a VA loan.

How to Get a VA Loan for Second Home

If you’re ready to move forward, here’s what to do next.

Step-by-Step Process

• Step 1: Confirm that you have remaining entitlement or enough VA loan benefits left to fund a second home.
• Step 2: Verify your eligibility with a Certificate of Eligibility (COE). You can obtain this through your lender or the VA’s online portal. This document shows your remaining entitlement and confirms your eligibility for a mortgage loan.
• Step 3: Find a lender experienced with VA loans for second homes. A knowledgeable lender will guide you through the specifics of applying for a second VA loan and help you avoid common pitfalls.
• Step 4: Submit your loan application, COE and any required financial documents. Prepare to provide proof of income, employment, and any other financial information the lender may need.

Common Challenges and How to Overcome Them

Your remaining entitlement might be limited if you still have an existing VA loan. The calculation involves complex formulas that determine your borrowing power. Work closely with your lender to understand these figures.

Another challenge is meeting occupancy requirements. Typically, you must intend to occupy the new home as your primary residence. Exceptions exist for active duty members who need a second home due to a permanent change of station.

Credit requirements may also pose a challenge. Ensure your credit score meets the lender’s criteria, typically around 640, but can vary. If your credit is lower, try to improve it before applying.

Funding fees can accumulate, especially if you make a smaller down payment. Plan your finances to cover these costs and reduce the impact on your budget.

Are There Alternatives to VA Loans for Second Home?

There are several other options if VA loans aren’t a good fit.

Conventional Mortgage

A conventional mortgage is a standard option for financing a second home. These loans are not backed by the government, so they often have stricter qualifying standards. You typically need a higher credit score and a larger down payment than VA loans. Interest rates can vary based on market conditions and your creditworthiness.

FHA Loan

FHA loans are insured by the Federal Housing Administration and are known for their more lenient qualification requirements. You could qualify with a credit score as low as 580 and only need 3.5% down. (If you can put 10% down, you may be eligible for a mortgage with a credit score as low as 500).

USDA Loan

USDA loans are available for second homes, but their use is restricted to rural areas. These loans are backed by the U.S. Department of Agriculture and are designed to promote homeownership in less densely populated regions. You can secure a USDA loan with no money down.

Conclusion: Is a VA Loan the Right Choice for Your Second Home?

If you already have a VA loan for your current home, you can still use a VA loan to buy a second home. This can be beneficial if you’re seeking a vacation home or relocating and want to keep your primary residence. Be sure to understand the eligibility requirements and weigh the pros and cons to determine if this mortgage product is right for you.

FAQs About VA Loan for Second Home