If you are a veteran with adequate time in the service, you may be eligible for VA home loan benefits. What many veterans don’t know is there is the chance of
owning a second home with VA financing. Yes, it’s possible to own two homes at the same time, both with VA financing. This is made possible with second-tier entitlement, which we discuss below.
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Understanding Basic Entitlement
Before you can understand second-tier entitlement, you must learn about basic entitlement. Every eligible veteran gets this entitlement. Today it’s enough for borrowers to buy up to a $453,100 home with no down payment. The VA guarantees 25% of that amount, so the VA guarantees $113,275.
This doesn’t mean you cannot buy a home that costs more than $453,100. It does mean, though, that you cannot purchase a home for more than this amount without a down payment. If you decide to buy a home worth more than that amount, you must put down 25% of the difference. Here’s how it works:
Mary is a veteran and has never used her VA benefits. She wants to buy a home for $500,000. The VA will provide her with the loan amount of $453,100. She must then put down 25% of the difference between $500,000 and $453,100. In other words, Mary must put down $11,725. The VA will only guarantee the first $453,100, if Mary defaulted on the loan.
Understanding Second-Tier Entitlement
Second-tier entitlement is the benefit you have left over after you buy a home with your VA benefit. Let’s say you buy a home for $200,000. This means you used up 25% of $200,000 or $50,000. You have $63,275 left in the VA guarantee. That translates into a $253,100 loan.
You may be able to still use this benefit if you buy another home, but only if you meet one of the following requirements:
- Your job or military duty relocated you too far away to commute
- You outgrew your home because your family size increased
- You have a need for an accessible home
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In these cases and after proper written request, the VA may approve you to keep your current home and use your second-tier entitlement to buy another home. The catch, though, is that you must
refinance your first VA loan with the VA IRRRL and then live in the home that you purchase with the additional entitlement.
Second-Tier Entitlement can Help After a Foreclosure
If you lost your original home bought with VA financing to foreclosure, second-tier entitlement will come in handy. While you lost any entitlement that you used on your original home, any entitlement that is left is available for use. For example:
Mary is a veteran and bought a home using her VA benefits. The home cost $150,000. Mary lost the home in foreclosure. She lost $37,500 in entitlement. But, Mary still has $75,775 in entitlement left. After she waits the mandatory 2-year waiting period, she can try to qualify for VA financing again, using her second-tier entitlement, which entitles her up to a $303,100 loan.
Something to Keep in Mind
If you use second-tier entitlement, but the guarantee does not cover the full amount of the loan on the home, you will have to
make a down payment. As we discussed above, you only need a down payment when your loan amount exceeds the VA’s guarantee. If that happens, you must pay 25% of the difference between the amount guaranteed and the actual loan amount.
This is how many veterans end up using their entitlement a second time around. Even though they have to make a down payment, the VA benefits are worth it. Plus, veterans that make a down payment have access to equity in their home right from the start.
Second-tier entitlement is a great way to keep your original home and buy another or to use as a second chance after a foreclosure. Talk with your VA lender to determine how much entitlement you have left and discuss your options.
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