The VA home loan rules are a little tricky. At first glance, it looks as if you can only use your benefits one time and to buy your primary residence. After a little digging, though, you’ll find that you may be eligible to use your remaining entitlement or reuse your current entitlement for a second home.
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The rules that apply to this situation are unique. Keep reading to see how it would affect your ability to buy another home.
The VA’s Basic Rules
In order to secure a VA loan, you not only have to be a veteran with entitlement, but you have to confirm that
you will live in the home as your primary residence. Essentially, the VA loan is not meant for vacation homes or second homes.
You need a minimum 620 credit score and a maximum total debt ratio of 43%. You’ll also need a decent credit history (no federally defaulted loans) and enough money after you pay your bills each month to satisfy the VA’s residual income guidelines.
If you use your entitlement and decide you want to move, you’ll need to sell the home and pay the loan off in full. At this point, you can petition the VA for restoration of your entitlement. This enables you to buy a new home with your full entitlement.
What is Full Entitlement?
Most veterans receive full entitlement benefits, which means the following:
- Basic entitlement of $36,000
- Bonus entitlement of $77,275
VA guarantees 1/4th of what you can borrow, this means you can borrow a total of $453,100, which is the conforming loan limits this year.
Keep in mind, this means you ‘may’ borrow this much. It doesn’t mean you automatically qualify for it, though. You have to prove that you can afford the loan amount that you apply for, as you would with any other loan program. If you qualify, though, the ability to secure a loan amount of that size with no down payment is possible.
Buying a Second Home
Now you know that the VA requires the home to be your primary residence, how would you buy a second home? This is where the exceptions to the rule come into play.
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The VA allows borrowers to buy another home under certain circumstances. The most common is when an active military member
PCS to a station that is too far away to commute. The veteran may want to keep his current home for retirement or for any other personal reason. There are two ways you can make this happen:
- If your VA loan is paid off, but you want to keep the property, you can apply for entitlement restoration as a one-time offer
- If your VA still exists, you can apply to use your remaining entitlement for the ‘second home’ even though it will be your primary residence while you are working in that area
Now you don’t have to just be active military in order to get these benefits. If you can prove to the VA that the home you bought doesn’t meet your needs right now, you may be able to get an exception. A few common examples include:
- Being relocated to a new job that is more than 50 miles away, which is too far to commute
- Outgrowing your home due to your family size
The VA grants exceptions on a case-by-case basis, but often works with various situations.
The Occupancy Requirements
Now, it’s important to note what you cannot do with your VA benefits. You cannot keep your primary home and buy a second home just to have it. Someone has to live in the new home that you use your VA benefits to buy.
The person that lives in the home could be you or your spouse; it does not have to be both of you. Other family members do not qualify in order to satisfy these important residency requirements, though. But, if you have a situation where you and your spouse have to live separately for a while due to work issues, you can get the VA financing you need to buy that second home. You’ll just have to guarantee that one or both of you will live in the home for at least six months and one day out of the year.
A Case-by-Case Basis
In short, your situation determines whether you can use VA benefits to buy a second home. Some veterans will be eligible while others will not. You have to satisfy the VA’s need for a net tangible benefit in order to do so. In other words, there has to be a valid reason why you need that second home. Like we said above, whether it’s to accommodate a larger family or make a commute more comfortable, the VA will look at all aspects of the situation before they decide. The more information you can provide, the better your chances of approval.
The VA loan offers flexible guidelines and the ability to secure financing for your primary residence with no down payment. It’s a great way to become a homeowner without draining your bank account. The VA provides low-interest rates, low fees, and they do not require annual mortgage insurance, making it a great program for the veterans of our country.
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