TABLE OF CONTENTS

    Eligible active duty service members, veterans, and surviving spouses can take advantage of the many benefits of the VA loan, including zero down payment, competitive VA loan rates, and more flexible lending criteria. 

    VA loans have helped many people who wouldn’t normally qualify for a traditional home loan achieve their dreams of homeownership. However, while this type of loan has a lower down payment and credit score requirement, it still has strict lending criteria. 

    The VA loan is guaranteed by the US Department of Veterans Affairs (VA), so there are several requirements you must meet to be eligible. However, once you’re eligible, you might still have some entitlement left over and wonder, “Can you use a VA loan for a second home?” In general, the VA does not allow you to use a VA loan for a second home. However, using your VA loan for a second home is possible—there are just a few caveats. Keep reading to learn more about VA loans for second homes. 

    KEY TAKEAWAYS

    • You can use a VA loan to purchase a second home but must meet the VA’s occupancy requirements. 
    • Your eligibility for a VA loan with zero percent down depends on your remaining VA entitlement. 
    • You can’t use a VA loan for vacation or investment properties, but a few exceptions allow you to rent out your primary residence.

    Can You Use a VA Loan for a Second Home?

    VA loans are intended for primary residences only, and the VA has a set of guidelines to ensure borrowers plan on living in the home. The VA loan occupancy requirements include moving into the property within 60 days after closing and living in it for at least 12 months before you can move, sell, or rent it out. Ultimately, you can’t purchase a second home unless you intend to occupy it for most of the year. If you haven’t lived in your current home purchased with a VA loan for at least a year, you can’t purchase a second primary home yet. 

    A second home is usually considered a vacation home, where you spend a few months out of the year; they’re not primary residences and often don’t qualify for a VA loan. However, some exceptions allow you to use a VA loan for a second home. 

    For example, if you’ve already paid off your original VA loan, you can get your VA entitlement restored and use it to purchase a second home. However, you’ll have to follow the VA’s occupancy requirements, so this second home can’t be a vacation home; you must intend to live in it for at least 12 months. On the other hand, if you haven’t paid off your loan yet but want to permanently keep the home, you’ll have to have lived in it for at least 12 months, in which case you’re free to purchase a second home and rent out your first home. If you plan to keep the home, it may impact your eligibility for a second VA loan. 

    In addition, there are situations where you might plan to sell your home but want to purchase a second home while your first home is on the market. VA loans are assumable, which means that the buyer will assume the terms of your loan and continue the payments. However, if you sell to a buyer who isn’t eligible for a VA loan, you may lose your entitlement. 

    In any case, you can use a VA loan for a second home if it will serve as your primary residence and you’ve met all the requirements of your original loan. In addition, you’ll have to meet certain VA loan income requirements to assure lenders you can afford both mortgages. Since you’ve already used at least part of your VA loan entitlement, you may not be eligible for a second loan, or your second loan amount may be much lower. 

    Since there are special circumstances where you can purchase a second home with your VA loan while simultaneously keeping your first home, it’s always best to discuss your options with a lender to ensure you qualify for a second VA loan and can afford a second mortgage. 

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    Can You Use a VA Loan to Purchase an Investment Property?

    You can’t use a VA loan to purchase investment property because the home must be your primary residence. However, after you’ve met the VA’s occupancy requirements and the property has served as your primary residence for at least 12 months, you can use it as an investment property as long as you continue to meet the occupancy requirements. There are several types of residences you can purchase with your VA loan and use as rental property, such as:

    • Single-family homes: If you have a large enough home, you can rent out a room as long as you continue living there for a period of at least 12 months. Renting a bedroom or another space in your home can reduce your mortgage payments and help you build wealth over time by allowing you to charge a tenant rent. Additionally, the VA doesn’t have rules about how many rooms you rent out as long as you still live there. 
    • Multi-unit properties: If you live in one of the units, you can use your VA entitlement to purchase multi-unit properties. This works similarly to renting out a single-family home; as long as the property is your primary residence, you can rent out units on the property. With that said, VA loans limit the number of units a property can have. If you plan to purchase a multi-unit property, it can’t exceed four units, so you can only have up to three tenants. 

    Can You Buy a Vacation Home With a VA loan?

    As mentioned, you can’t get a VA second mortgage to purchase a vacation home because it must be used for a primary residence. In addition, you must follow specific occupancy requirements that require you to live in the home for at least 12 months. With that being said, you can use your VA loan for a second home and your first home as your vacation home. In this case, you’ll be responsible for two mortgages, and you can use your remaining entitlement to purchase the second home. 

    Meanwhile, if you haven’t lived in your home for at least 12 months, you can refinance your VA loan to a conventional or Non-QM loan and keep both homes. After you refinance your first VA loan into a conventional or Non-QM loan, you can use your remaining entitlement to purchase a new property that can serve as your primary residence or vacation home. That said, you should learn the difference between VA loans vs conventional loans because conventional loans have different lending criteria that may impact your eligibility. However, if you qualify for a conventional loan refinance, the VA allows a one-time restoration option to let you use your full entitlement to purchase a second home. 

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    What Is the VA Bonus Entitlement?

    The VA guarantees up to 25% of your home loan. This amount, also known as your entitlement, is the maximum the VA will pay to your mortgage lender if you default on your loan. Therefore, if you want to purchase a second home with the same benefits as the first VA loan, such as zero down payment, you must have enough of your entitlement left over to cover the VA’s guaranteed 25%. Because of this rule, all eligible veterans, active duty service members, and surviving spouses are entitled to $36,000 based on the average home price of $144,000. However, the VA also offers bonus entitlement, covering 25% of the purchase price for properties above $144,000. 

    With VA loans, you can borrow up to four times the entitlement amount, and there’s no loan limit for military borrowers with their full entitlements. Those who have full entitlement usually haven’t used their VA loan benefits or have paid off their first VA loan in full before selling the property. However, you’ll have a remaining entitlement since you already used your VA loan to purchase a primary residence and plan to keep it. 

    What to Consider When Using a VA Loan for a Second Home

    If you plan to purchase a second home with your VA loan, you should be aware of some potential challenges you’ll face if you keep the first home. You’ll need to pay off your VA loan in full and sell the home to restore your full entitlement. Using your VA loan a second time after you’ve already paid off the first loan and sold your property is easier than getting one for a second primary residence. However, here are a few things to consider when buying a second home with a VA loan: 

    Remaining Entitlement

    Based on the entitlement you have left, you may not be eligible for a second home loan with no down payment because it must cover 25% of the loan amount. If you don’t have enough remaining entitlement, you may have to make a down payment that covers the difference. 

    Unfortunately, calculating the amount guaranteed by the VA is tricky because it’s based on your current entitlement and conforming loan limits in your area. For 2024, conforming loan limits are $766,550 in most areas. For example, let’s say you want to purchase a home worth $500,000 and have already used $90,000 of your entitlement. The VA will do two calculations to determine whether you have enough of your remaining entitlement to put zero down on the home. 

    The first calculation is the local loan limit minus your used entitlement: 

    766,550 x 0.25 – 90,000 = 101,637.50

    The second calculation focuses on the actual loan amount, which is $500,000: 

    500,000 x 0.25 = 125,000

    In this case, the VA will take the lower amount and guarantee $101,637.50. Remember, the down payment and VA entitlement must cover at least 25% of the loan. We know that 25% of the loan is $125,000, and your remaining entitlement is only $101,637.50. Therefore, to be eligible for a VA loan for a second home, you must make a down payment of $23,362.50 (125,000 – 101,637.50). 

    If you’ve already used your VA loan to purchase a home and don’t know your remaining entitlement, you can check your Certificate of Eligibility, which will state your current entitlement and entitlement charged to a previous VA loan. 

    VA Funding Fee

    One of the most significant benefits of the VA loan program is that it allows borrowers to avoid private mortgage insurance (PMI) when they make a down payment of less than 20%. However, there are several other costs associated with this type of loan, such as the funding fee. The VA funding fee helps keep the program available to a wide range of eligible borrowers and is a one-time fee paid directly to the VA. 

    The funding fee funds the program and protects the lender if the borrower defaults. The VA funding fee amount depends on how many times you’ve used your loan and the size of your down payment. First-time VA loan borrowers have a lower funding fee percentage than second-time borrowers. For example, if you choose to put less than 5% down on your second home, you’ll have a funding fee as high as 3.3%. Luckily, you can reduce your funding fee with a higher down payment. For example, if you make a down payment of 10% or more, your funding fee is only 1.25%. 

    Occupancy Requirements

    To be eligible for a VA loan for a second home, you must certify that you intend to occupy it, and ultimately, it must serve as your primary residence. In addition, you must move into the home within a reasonable timeframe—which is generally about 60 days after closing—but there are a few exceptions. For example, you can have a spouse or dependent child satisfy the occupancy requirement if you’re on active duty and can’t move into the home within a reasonable time. In addition, you must live in the home for at least 12 months. Therefore, you can’t purchase a second home with a VA loan if you haven’t lived in your first home for at least one year.

    There are some exceptions to this rule. For example, if you’re moving for work, plan on selling the house, or are stationed elsewhere and want to purchase a second home there, you can talk to your lender about your options. 

    Apply for a VA Loan for a Second Home

    Buying a second home with a VA loan is possible, but several challenges exist. If you don’t have full entitlement, you may be required to put money down on the home. Additionally, you must meet the VA’s occupancy requirements for the first home before you can purchase a second. 

    Wondering if you can use your VA loan entitlement for a second home? Contact Griffin Funding. We can help you determine your eligibility and obtain your COE to review your entitlement and options. 

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    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.