If you’re a veteran or active service member looking for funding to finance your second home, you might have thought in the direction of VA loans.
Not only is a VA loan remarkably accessible to people who’ve served in the military before. It’s also one of the realistic funding options to explore if looking to buy a second home.
We’ve prepared a comprehensive guide on how to secure and utilize a VA loan for your second real estate property. But first, let’s begin by understanding what this loan is all about and a few things to remember before applying for it.
Photo Credit: Pixabay.com
Introducing VA Loans
A VA loan is a type of mortgage financing provided by private lenders (such as banks and mortgage companies) but guaranteed by the United States (US) Department of Veteran Affairs. This type of loan is available for (active and retired) members of the US military service and their spouses.
The US Department of Veteran Affairs typically doesn’t guarantee VA loans for personal use. The fund is available almost exclusively for investment purposes.
It’s also worth noting that the Department of Veteran Affairs only guarantees a portion of the VA business loan. However, their partial involvement means a lot in qualifying for the loan.
Moreover, numerous lenders provide a VA loan second home. Whether you’re looking for a loan to finance a suburban rental property, cabin, or caravan, you will find a lending institution that appeals to your needs.
Things to Consider Before Obtaining A VA Loan for a Second Home
Buying a home is undoubtedly one of the most prudent investments in 2024. That’s regardless of whether it’s a residential or commercial property.
But before you apply for a VA loan to finance a second home, you’d do well to find an ideal property.
Numerous factors designate a piece of real estate property as worth purchasing. Most notably, the home should be in a prime location with the potential to generate significantly high rental income. These are typically areas located within proximity to essential amenities.
However, in the case of VA loans for a second home, the focus should be on how to get pre-approved for the mortgage. The intensiveness of the preapproval largely depends on what you plan to do with your first property.
Photo Credit: Pixabay.com
Preconditions for Buying a Second Home with A VA Loan
Generally, you can access a VA loan for a second home if you intend to occupy the property. No specific guidelines define the duration you must live in the new house before listing it for sale. However, most lenders will require you to state that you’ll occupy the new residence for at least 12 months.
The quickest way around these regulations would be to sell your current home first. Selling your home accelerates getting preapproved for a second VA loan by addressing two key issues simultaneously.
First, it proves that you intend to occupy your second home immediately. Second, it lets you settle any outstanding balance on your first VA loan, restoring your entitlement.
Note that your entitlement isn’t restored automatically. You’ll need to formally request your Certificate of Eligibility (CoE) to be updated after disposing of your primary home.
Now, you could be seeking a VA loan for a second home while keeping your current property. In that case, a heavier burden of proof will rest on your shoulders. That’s especially considering that VA loans have occupancy rules restricting property buyers from using the home for income-generating purposes.
You must convince the prospective lender that you do not intend to use the property commercially, at least not within the first few months of purchasing it.
Remember that seeking a VA loan for a second home without disposing of your first home also means your entitlement remains unrestored. Therefore, you may need to invoke a one-time restoration entitlement by filling out and submitting an application to a regional VA office through the VA Form 26-1880. Another option would be to explore second-tier entitlement.
Photo Credit: Pixabay.com
Why Does Your Entitlement Matter?
We’ve continually underscored the significance of restoring your entitlement before applying for a VA loan for a second home. But why does entitlement matter so much?
Well, it might interest you that most lenders provide a 0% down payment for borrowers with a 25% loan guarantee.
By way of illustration, assume that your remaining entitlement after disposing of your first VA loan is $100,000. Applying for a second VA loan means the lender may only approve up to $400,000.
Obtaining a Second VA Loan If You Foreclosed On Your First Home
Foreclosures are heartbreaking enough for homeowners. However, getting your first VA-acquired home foreclosed on doesn’t prevent you from applying for a second VA loan.
One way around this obstacle is to apply for foreclosure forgiveness from your lender if the foreclosure resulted from extenuating circumstances like death or illness.
Also, you can still apply for a second VA loan, bearing in mind your remaining entitlement.
Photo Credit: Pixabay.com
Wrap Up
A VA loan can help finance your second home, regardless of whether you’ve paid your first VA loan or not.
However, the conventional wisdom is to dispose of your first VA-financed property before seeking a second VA loan. Alternatively, indicate that you intend to reside in your second home for at least 12 months.
Thank you,
Glenda, Charlie and David Cates
