There are rumors and urban legends when it comes to securing VA loans. Some of the most confusing of those myths are regarding whether or not it’s possible to have more than one VA loan at a time. While it may not be common, it’s entirely possible for veterans and active duty military to have two home loans at once. In fact, it’s possible to have even more than that.
So whether you got new PCS orders or are just planning a move to a different city, it’s very possible to keep your first home while still using VA benefits to help purchase a new one. This is part of a concept called VA entitlement, which is a system used to calculate how much of a home loan can be guaranteed by the government.
In fact, with something called second-tier entitlement, it’s possible to secure a VA backed mortgage even after a default or foreclosure. Here’s what you need to know to use VA entitlement to your advantage.
What is VA Entitlement?
VA entitlement is a program that allows qualified active duty service members and veterans to purchase a home without having to provide a down payment, depending on the cost of the home.
Most eligible veterans and active-duty military members are entitled to purchase a home using their VA entitlement. What this entitlement does is guarantee one-quarter of the total loan amount and often eliminates the need to provide an additional down payment.
How does VA Entitlement Work?
The VA entitlement provides a backing of up to 25% of the total cost of a home purchase. If a home purchase falls within the entitlement parameters, this not only eliminates the need for a down payment, it also means that the borrower isn’t required to pay extra expenses like mortgage insurance.
Here’s how the costs breakdown:
The standard entitlement is $113,275 dollars. Because this is one-quarter of the total amount of the loan, it allows a borrower to access a mortgage worth $435,100. It’s still possible to borrow above that, but anything more would require an additional down payment.
Since not all home purchases will cost $435,100, not all of the entitlement of $113,275 will always be used with a mortgage. For example, if a home costs $200,000, the VA entitlement will guarantee 25% of that, or $50,000.
In this case, the borrower is left with an entitlement of $63,275. This leftover entitlement could potentially be used for a future home purchase without having fully paid off the previous mortgage.
However, because part of the entitlement has been used, there’s a new limit on how big of a mortgage can be taken out using VA entitlement. In this case, the new limit is a $253,100 loan. Because the VA guarantees 25% of a loan, the new maximum figure is simply whatever is left over from the entitlement ($63,275) multiplied by four.
Keeping Your First Property
When PCS orders come in, it’s not always a convenient time to sell your home and move. Maybe the housing market is bad, or perhaps you’re interested in keeping your house and renting it out for additional income. Even though you may wish to purchase a new home near your next base, you don’t necessarily have to sell your current house first.
It’s worth noting that the VA entitlement is meant to help service members and veterans purchase houses to live in, not as an additional rental or income properties. That means that you can’t buy a house simply to rent it out and that generally, you must occupy that residence within 60 days of purchase.
However, once you move on to a new duty station, you’re welcome to continue owning that house and renting it as you see fit.
VA Loans After Foreclosure
An attractive part of the VA entitlement program is that even if a previous loan is foreclosed on, that doesn’t disqualify you from seeking future VA loans. While some lenders may require a two-year waiting period, that isn’t always the case. More often, the question is really about how much of entitlement is left. These calculations are exactly the same as the example discussed previously.
In the US, there are some places that cost more than others to live in. If you’re living in one of these places, the VA has made additional funding available to help offset the cost of living. While the variances differ depending on the county, the maximum benefit currently available for VA entitlement in high-cost counties is capped at $679,650.
Minimum Loan Available
Using the second-tier entitlement has a few restrictions that must be taken into account prior to home purchase. One of those is that the minimum loan amount to be taken out can’t be less than $144,001. While certain expenses like the VA funding fee can count towards that total, others like energy efficient home improvements do not qualify as total expenses. Simply put, to use a second-tier entitlement, the loan must be for more than $144,001 dollars.
It’s possible for borrowers to use a one-time entitlement restoration so that they can fully utilize the maximum entitlement to purchase another property. To make this possible, the borrower must have fully paid off their mortgage from a previous VA entitlement loan.
While this can be an attractive program, after the benefit has been restored, to further take advantage of another VA loan, every property that was purchased under a VA entitlement loan must be sold before another loan can be issued.
It’s possible to take advantage of the VA entitlement program to make purchasing a first or second much easier than conventional ways. However, there are plenty of factors to be taken into consideration along the way. If you’re not sure where you stand, it’s worth talking with an expert in the field to help you understand all of your options.