Veterans looking to buy a house are entitled to juicy loan benefits civilians don’t enjoy. One of the juiciest benefits can help them buy a second house and not need a down payment to do so.
That aid comes via the loan entitlement program. The Department of Veterans Affairs will guarantee a portion of your loan and if default, the VA will pay your lender that portion of the loan.
The guarantee is typically 25% of the loan amount on the first home you buy. If you apply for a second loan, many other factors come into play and things can get confusing, but your big takeaway should be: Yes, you can own two houses under the VA’s loan entitlement program.
Furthermore, you won’t have to know all the intricacies of the military housing process to make it happen. That’s what loan experts are for. They can explain the two layers of VA loan entitlements – a basic and a second-tier entitlement.
Veterans typically have a primary entitlement of $36,000 and a secondary entitlement of $125,800. That adds up to a tidy $161,800 to help veterans find their home sweet home.
How Do I Calculate My Secondary Entitlement?
First, you find a house. Let’s say it costs $250,000.
With the VA guaranteeing 25% of that amount, that means you’d get a $62,500 entitlement. Now, subtract that amount from the $161,800 entitlement total.
You’d have $99,300 “secondary entitlement” remaining. That makes it possible to get a second VA loan, if you qualify.
The VA realizes that housing prices vary widely in the U.S. A two-bedroom bungalow that costs $189,000 in Dothan, Ala., will set you back $1.89 million in San Francisco.
The VA used to cap what it would guarantee on first loans until 2020. Now there are no limits if you have full entitlement. So, feel free to check out that house in the Bay Area, if you can afford it and, more importantly, if the bank will qualify you for that loan.
What Scenarios Make a Second VA Loan Possible?
There are three ways to qualify for a second VA loan:
- You’re keeping your home and buying a second one.
- You’ve defaulted on a VA loan but are buying another house.
- Your VA loan is being assumed by a qualified buyer.
VA loans can only be used for primary residences but having two houses is not unusual given the military lifestyle. Every soldier is probably familiar with Permanent Change of Station orders, which means your being assigned somewhere for 2-4 years.
If you must relocate, you can keep your old house and get a VA entitlement loan on the new one. As with all loans, you must show lenders you can afford two houses. One way to do that is by renting your first home and putting that money toward the new mortgage.
Unlike fist mortgages, there are limits for second-tier entitlement loans. They are based on the county where you’ll be living. The math gets a little tricky, so let’s use that $250,000 example on the first house.
There was a $62,500 entitlement on that mortgage. When you apply for a second VA loan, your entitlement will be reduced by that amount.
As we said, second-tier loan limits vary by county, but the standard is $548,250. The VA would guarantee 25% of that – $137,062. But you have to subtract the initial $62,500 entitlement on your first house.
That would leave you a second-tier entitlement of $74,562. That’s the 25% the VA would guarantee.
Now, multiply that by four and you get $298,248. That’s how big a home loan you could get from a bank without having to make a down payment.
If you found a house you wanted for $350,000, you’d need to cover 25% of the difference between $298,248 and $350,000. That total is $51,752, so you’d have to pay $12,938 out of pocket.
Just to add to the confusion, there is a way around this. It’s called One-Time Restoration of Entitlement. You’re eligible if you have paid off your initial VA loan. You do that by living in the home until you retire the mortgage, or by refinancing through a non-VA loan. That allows you to keep the property and start fresh shopping for another VA loan.
Please note that the One-Time Restoration of Entitlement means just that. You get to do it one time.
How Do Two VA Loans Affect Your Entitlement?
This requires more math, though it’s a pretty simple recap of what we’ve already gone over.
You have $161,800 in potential VA loan entitlement. Using the example of a $250,000 mortgage, your first entitlement is 25% of that – $62,500. That leaves you $99,300.
Since the VA will guarantee 25% of a mortgage, multiply that by four, which equals $397,200, which is the amount you can apply for a second VA-backed loan without having to make a down payment.
The key word there is “apply.” Carrying two mortgages can be challenging. Lenders will look at your debt-to-income ratio and residual income to make sure you don’t bite off more than you can financially chew.
VA Loan After VA Foreclosure
A foreclosure won’t look good on your credit report, but it won’t necessarily keep you from getting a second VA loan and the entitlement benefits that come with it.
You can apply for the second VA loan two years after your house is repossessed. The foreclosure might have lingering consequences, however, since your entitlement might be tied up in it.
Say your $250,000 home was foreclosed. Then 25% of that – $62,500 – was used in the first mortgage.
With the $161,800 in entitlement loans, you are left with $99,300. Multiply that by four and you can apply for a $397,200 mortgage.
The math is similar to how two VA loans affect your entitlement. The difference here is you’ve lost your first home.
You’ll also have to pass the two-year period and reestablish your credit to the point a lender will float you a loan.
Bottom Line: Understanding Entitlement
As you may have deduced by now, secondary VA loan entitlement can be tad confusing, especially if you’re not a math whiz. Just remember a few basics, starting with obtaining a Certificate of Eligibility.
That’s a document from the VA that confirms you are eligible for the VA loan program. And that’s what lenders love to see, since they know the government will be backing a portion of the loan.
Having a COE doesn’t guarantee you’ll get approved for the loan, however. You’ll still have to show lenders you can afford the mortgage.
As we noted earlier, there are ways to restore lost eligibility. You can apply for the One-Time Restoration, though the simplest way would be to sell the first property and start with a clean slate.
A COE also doesn’t spell out the specifics of the loan entitlement program and how you might qualify for a second loan.
A reputable lender should be able to guide you through the mathematical maze and determine how much your entitlements are. Once you get approved and are sitting in a second home, you’ll find the process was worth any aggravation along the way.
About The Author
Tom Jackson focuses on writing about debt solutions for consumers struggling to make ends meet. His background includes time as a columnist for newspapers in Washington D.C., Tampa and Sacramento, Calif., where he reported and commented on everything from city and state budgets to the marketing of local businesses and how the business of professional sports impacts a city. Along the way, he has racked up state and national awards for writing, editing and design. Tom’s blogging on the 2016 election won a pair of top honors from the Florida Press Club. A University of Florida alumnus, St. Louis Cardinals fan and eager-if-haphazard golfer, Tom splits time between Tampa and Cashiers, N.C., with his wife of 40 years, college-age son, and Spencer, a yappy Shetland sheepdog.
- N.A. (ND) VA Home Loan Limits. Retrieved from https://www.va.gov/housing-assistance/home-loans/loan-limits/
- N.A. (2021, October 29) VA Loan for a Second Home: How It Works. Retrieved from https://www.kten.com/story/45087181/va-loan-for-a-second-home-how-it-works
- Kamin, D. (2021, September 14) For Military Families, VA Loans are a Lifeline, but With a Catch. Retrieved from https://www.nytimes.com/2021/09/14/realestate/military-families-va-loans.html