One of the biggest obstacles to buying a new home or getting a business off the ground is often the capital you need to get started. Whenever servicemen and women need to “move up” as far as buying a house is concerned, they have a slight advantage if they go through the VA loan program.
Like most loans programs, the VA loan program has certain requirements one must fulfill, but unlike many other programs, veterans’ terms are very favorable. Let’s take a quick look at the VA loan program, as well as how many times you can use a VA loan when you need it.
What is a VA Home Loan?
VA or Veteran Affairs Loans are the type of loans that, although issued by a host of private lenders, are guaranteed by the government (Department of Veteran Affairs).
What makes the VA loans program stand out and apart from every other lending program is that it attracts extremely low-interest rates and highly attractive terms. This is mostly because this loan is guaranteed by the VA, which means that it has a much lower risk factor than most loans.
Another thing that makes a VA home loan unique is that when buying a home using the VA loan program, you won’t need to pay any down payment! That is a huge advantage as down payments are one of the biggest reasons a big percentage of Americans can’t buy the homes that they would otherwise afford if they had the down payment money.
The VA home loan got even better in 2020 thanks to a few rule changes made to the “Blue Water Act.” These changes include:
- There is now no upper VA loan limit on any VA mortgage starting 1st January 2020
- Non-exempt borrowers got an increase on their VA Funding Fee
- Both Purple Heart recipients, as well as those who are entitled to receiving VA compensation, are now exempt from paying any VA funding fee
How Many Times Can an Eligible VA Borrower Use a VA Loan?
An eligible VA borrower can use a VA home loan as many times as needed as long as they continue to qualify.
That is the one thing about VA loans that makes them extremely special; there’s no limit to how many times you can use them. As long as you keep your VA eligibility, you can use VA loans and all the VA loan benefit opportunities they bring in perpetuity. This is regardless of how many primary homes you might own. However, there are some rules to keep in mind.
One of the biggest rules is using your VA loan to refinance or purchase a primary residence. Unfortunately, this means that you can’t use the loan to buy or finance any investment or rental properties.
You can, however, apply for a new VA loan even if you keep your primary residence. Meaning that if you intend to buy a secondary home, have cleared your initial loan, and intend to buy a second home, you can essentially apply for a VA loan and restore your full loan benefits. According to the VA, you can take advantage of this rule when:
- You have paid off your first or primary residence purchased using a VA loan
- You initially bought your home using a VA loan and then refinanced using a non VA backed mortgage
How Many VA Loans Can Eligible Veterans Hold at Any One Time?
While the rules stipulate that you can only use your VA loan for a primary residence, some exceptions allow you to hold more than one VA loan at any given time. Granted, the norm is that you only hold the same loan throughout and show proof of residence indicating that you are using the VA loan for your primary home.
That being said, there are some instances where holding more than one VA loan at a time is possible. One of the most common scenarios for this is when a service member receives what is known as a permanent change of station or “PCS” orders. This means that you will have to move to your newly assigned duty station.
Let’s take a look at how that may work:
For example, if you receive a PCS and want to move your entire family to the new station, but you still have a VA loan on your current primary home, you may be able to have two VA loans at once.
Let’s also say that you can’t sell the new home fast enough, but at the same time, you would love to buy a new home at the newly assigned service station. Maybe it isn’t even about being unable to sell your current home fast enough and more about wanting to hold on to it and maybe put it on Airbnb, rent it out, or something.
In this kind of scenario, if your current VA loan standing, credit, and finances allow you to access a VA loan for the second home, then you can do so. In doing so, you will be holding more than one VA loan at the same time. Better still, if you are earning rental income from the home you are leaving, you can use that to income to offset the new, second VA loan.
The problem with this scenario is that you may be limited in exactly how much you can borrow using your VA loan for the second home without necessarily making a down payment, the lack of which is one of the biggest benefits of VA loans. Whether or not you make a down payment on your second VA loan actually depends on how much VA loan entitlement you have left.
What is VA Loan Entitlement?
Your “VA Loan Entitlement” refers to just how much of your loan the VA guarantees.
One of the main reasons why VA loans are so affordable is because the Veteran Affairs guarantees a percentage of the loans veterans take. This means if the borrower defaults on their payments, the VA will reimburse the lender up to a certain percentage of the amount owed. That percentage is referred to as “VA loan entitlement,” and every veteran has a different VA entitlement.
Here are the different levels of VA entitlement:
- Full Entitlement: This is bestowed upon veterans who have either never had a loan with the VA (it’s their first loan) or have fully repaid their previous loans and, as such, have had their entitlement fully restored. For loans of over $144,000, the VA typically guarantees about 25%.
- Reduced Entitlement: If, for example, you already have an outstanding loan but receive a PCS and want to buy a new home in the new location using your VA loan benefit, then you may have your reduced entitlement. This means that the VA can only guarantee a much lower amount of your VA loan benefit, and you may have to pay a down payment for the rest. This also occurs when you default on your previous loans.
It’s important to remember that just because your entitlement may be reduced doesn’t necessarily mean that you can’t take out larger loan amounts as there isn’t an upper VA loan limit anymore. The only problem is that you will have to pay more in terms of down payment, but you will still get the lower interest rates and other favorable terms that come with VA loans compared to a more conventional loan offer.