If you’ve ever served in the military, you may be eligible for a VA loan. This mortgage option comes with a host of benefits, including 100 percent financing, no private mortgage insurance and flexible credit and underwriting standards. It also comes with another great benefit: You can use it more than once.
If you use your VA loan and then sell the home or refinance it into another loan product, you can request a restoration of your entitlement. The VA normally receives a notification a loan has been paid, but you may need to provide documentation, such as a satisfaction of mortgage from the county clerk if your entitlement isn’t restored automatically. It is also possible to request a one-time restoration of entitlement if you still own the home but the loan has been paid in full.
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Know Your Remaining Entitlement
If you would like to pursue the option of having multiple VA loans out concurrently, you will need to be aware of your remaining entitlement. The easiest way to obtain the exact amount of remaining entitlement is by pulling your updated certificate of eligibility. Many lenders can obtain this for you, or you can request it yourself online or by mail.
Now a few calculations. If you are eligible for the VA loan, you will obtain a mortgage through a lender, and then the VA will guaranty a portion of that loan. The VA’s guaranty is equal to the lesser of 25 percent of the loan amount or 25 percent of the county loan limit. In most areas, the county loan limit is set at $417,000, but some counties with higher costs of living have higher loan limits.
If a buyer wishes to purchase a home above the county loan limit or above their available entitlement, their lender will likely require a down payment. The VA offers guaranty calculation examples for illustration purposes. Examples 4 and 5 show the calculations for situations where a down payment may be required.
Factors Your Lender Will Consider
Factors other than your remaining entitlement your lender will consider include:
Intent to Occupy
Regardless of whether this is your first VA purchase or your fourth, you must have intent to occupy the new home as your primary residence within a reasonable time (typically 60 days) after you purchase. If you are looking at a multi-unit property, you need to plan on occupying one of the units. The VA doesn’t have a set period of time you must then remain in the home, but the lender likely will.
Often the mortgage deed of trust will outline the period of time you are expected to occupy the home. Frequently this is set at 12 months. But there are certain circumstances where this requirement is waived. You’ll want to talk with your lender about circumstances that would allow a shorter occupancy. One common example of this may occur when an active duty service member receives orders for a new duty station.
Circumstances Surrounding Subsequent Home Purchase
The purpose of the VA loan is to assist veterans in purchasing a primary residence. This is why you can’t typically purchase a vacation home, working farm or other income-producing properties, with the exception of a multi-unit property in which you intend to occupy one of the units.
If you plan on keeping your first property and using your all or some of your remaining entitlement on a second home, your lender will keep a close eye on your debt-to-income ratio and your plans for the first home. They’ll consider cash reserves, whether you can carry two mortgages or if you have a rental agreement in place for the first home.
If you are converting the first home into a rental from your primary residence, your lender may want to see a 12-month rental agreement and a deposit check before offsetting the mortgage payment. If it’s already a rental, they’ll likely want you to have a two-year history of property management before you can use the rental payments as income.
If you are looking to use your VA loan again, it’s important to work with a lender with a thorough understanding of the entire VA loan process. They can run your entitlement calculations and guide you through any unique income situations you may face if you currently have or are converting a previous home into an investment property.
Investors: If you have any experience with the VA loan process, is there anything you’d add?
Let me know with a comment!