What You Need to Know About Buying a Second Home with a VA Loan

Veterans often wonder if they can purchase a second home with their Veterans Affairs (VA) loan benefits. Unfortunately, you cannot purchase a second home with a VA loan. Any home purchase made with your VA loan must first and foremost be for your primary residence.  

However, your VA loan is a lifelong benefit that can be used multiple times on eligible transactions. While you can’t use them to buy a second home—as in a vacation home, investment property, or rental property—there are compliant ways to use them to purchase another home.  

Those eligibility requirements are somewhat complex, especially if you intend to keep your first home. Finding yourself in a position to buy another home is exciting, though. Still, with more hoops to jump through than the first time, guidance from an experienced lender can make all the difference.  

In this article, we will explain the ins and outs of using your VA loan to buy a second home.

Why VA Loans Require a Primary Residence

VA home loans were introduced by the original G.I. Bill with the goal of helping active-duty servicemembers, veterans and their families find a place to call home. They were not created to help veterans build an expansive real estate portfolio.  

Additionally, though the intention behind the VA loan benefit is to foster homeownership, its stringent residency requirements are also built to appeal to lenders.  

The VA loan guaranty protects lenders up to a certain amount (usually 25%) in case of foreclosure, and the primary residence requirement reduces the risk of speculative investment by borrowers.  

This is why your VA loan requires that you intend to use the property as your primary residence, allowing 60 days to occupy the home after you close.

Exceptions to the 60-Day Occupancy Rule

There are a handful of potential exceptions to that 60-day rule:  

• Veterans planning to retire at a specific time within 12 months of applying for their VA loan may be able to negotiate a later move-in date.  

• If the property you’re purchasing requires repairs to meet the Minimum Property Requirements (MPRs), you can delay the move-in until repairs are complete.  

• You are an intermittent occupant of the property due to employment circumstances or deployment, but the home is still intended to be your primary residence. 

• Your military spouse and/or dependent child can move into the property ahead of you. 

• Unusual circumstances outside of those listed above may also be considered by the VA on a case-by-case basis for approval.  

These exceptions are just that, exceptions to the rule, and they may be difficult to get. If you plan to use your VA loan, your best path forward is to intend to move into that property within the 60-day window.

Is a Second Home or Vacation Property Allowed?

You cannot use your VA loan to buy a second home, investment property, or vacation property because the VA requires that you use the home as your primary residence. 

If you don’t intend to live in the home full-time, the VA will not consider that an eligible purchase. However, as stated above, your VA benefits are a lifetime benefit that can be used multiple times under certain circumstances.  

Although you are limited in that you can only buy a primary residence with your VA loan, you may still have more options centered on your first home.

Transitioning your old home into a rental property

A military borrower could potentially transition their old home into a rental property if they meet certain criteria, and if the new home becomes the primary residence within 60 days of closing (see the 60-day occupancy rule for a VA loan purchase).   

If you would like to transition your old home into a rental property, you may be required to show some variation of these factors (speak to your lender for specifics): 

• At least three months of reserves for each rental property you own. 

• Disclose any existing lease agreements.  

• You have a reasonable likelihood of success as a landlord.  

One caveat regarding rental properties: A VA loan can be used to buy a multifamily home with up to four units, as long as you intend to make one of them your primary residence. This is often referred to as “house hacking,” in which you rent out the other units of that property while still living on the property full-time.  

For a multi-unit property, you will be required to have cash reserves totaling at least 6 months mortgage payments. You will also likely be asked for documentation of your prior experience managing rental units or the use of a property management company to oversee the property.

Transitioning your old home into a vacation property

Veterans can, under specific circumstances, turn their old home into a vacation property and make their new home their primary residence. If you’ve paid off your first loan, you may have access to your full entitlement for the new home. Otherwise, you likely would only have access to your partial entitlement for the new transaction. Note that with only a partial entitlement, you may need to provide a down payment.  

This would work similarly to transitioning an old home into an investment property. You will need to discuss this with your lender and determine whether you can afford both mortgages if you have not yet paid off the first one. Should you be allowed to move forward, you should intend to move into the new property within 60 days of closing.

Smart Alternatives (HELOC or Cash-Out Refinance)

If all these conditions have your head spinning, know that there are other paths to purchasing your second home that are not reliant on your VA loan benefit. For example, you could tap into your home equity to secure that spot in Myrtle Beach you’ve been eyeing.  

By using a Home Equity Line of Credit (HELOC), you may be able to maintain your current home’s low VA interest rate. A HELOC is a line of credit secured by your home. It lets you take out the available funds that you need and, in this case, put them toward a down payment on your second home.  

Alternatively, a cash-out refinance could be a smart solution for veterans with a significant amount of home equity. This option would replace your current mortgage with a larger one and give you the difference in cash. With sufficient equity, that difference may be enough to fund your down payment.  

Of course, before pursuing these options, or any of those described above, consider consulting with an experienced lender who understands the complexities of VA transactions. Whether you are in the market for a vacation home or an investment property, you deserve to move confidently and securely through this exciting decision.

FAQs

How does my VA entitlement work?

Your VA entitlement guarantees up to 25% of the loan. The full entitlement is separated into two tiers: a basic entitlement and a bonus entitlement. 

What is the difference between the basic and bonus VA entitlements?

The basic entitlement dates back to the original G.I. Bill and does not typically cover current housing prices. With your basic entitlement, the Department of Veterans Affairs will insure up to $36,000 of your loan (25% of $144,000, a typical sale price for that time).  

As of 2020, the VA will guarantee up to 25% of your VA loan over $144,000. With access to your full entitlement, you effectively do not have a VA home loan limit (though your lender still decides what loan they believe you can afford).

How does a partial VA entitlement work when buying another home?

Imagine you already used your VA entitlement to support the purchase of a $300,000 home. That first entitlement would have been around $75,000. Later, your second home costs $500,000. The VA would normally guarantee $125,000 of that mortgage, but you must first subtract the original entitlement, leaving you with $50,000 from the secondary VA entitlement.  

That means you would likely need to supplement your entitlement with a down payment to purchase that new home, assuming you have not already paid off your first VA loan. Lenders will also assess whether you can afford to hold two mortgages based on factors like your debt-to-income ratio.

Can I restore my entitlement without selling my VA property?

Yes, but you can only do this once. A one-time restoration of entitlement lets veterans fully repay their original loan and keep the property. Note, though, that if you ever want to restore it again, you must sell every property you bought with a VA loan.

Final Thoughts

Veterans preparing to purchase another home have a number of options for financing. However, if you’re attempting to use your VA loan benefits, you first need to clear a few hurdles. These VA requirements can make the process feel overwhelming.  

However, with the help of an experienced lender, you may be able to find a way to use your VA loan to buy a second home that you intend to use as your primary residence. If that option is not in the cards for you, they can also point you toward alternative financing options that better suit your situation.  

Wherever you are in your second home search, seeking out up-to-date information and the help of a knowledgeable lender is the best way to enjoy a smooth home-buying experience.