Can I Get a VA Loan for a Second House If the First House Is Not Paid Off

By David Rouse

One of the most popular benefits given to service members and veterans is the home loan guarantee programs provided by Veterans Affairs, or VA. This loan program allows veterans to purchase a home without a down payment. VA also allows veterans to use this program multiple times over their life. VA does not give the loan directly to the veteran, they protect the lender against losses as they provide the loans to veterans under the VA home loan guarantee program.

VA requires the borrower obtain a copy of their certificate of eligibility when applying for a VA loan. The certificate of eligibility outlines if the borrower is eligible to receive the home loan guarantee from VA. Each veteran receives an entitlement amount, which he may use when financing a home. This entitlement amount is the amount VA will guarantee the lender. Most lenders want the entitlement to cover at least 25 percent of the total loan amount. As the veteran uses the entitlement, the new certificate of eligibility shows the reduced amount of entitlement remaining, if any. To obtain a new mortgage, the veteran must have sufficient entitlement for the new loan amount.

VA will only guarantee a loan for a home occupied by the borrower. This normally means the borrower must refinance their current VA loan or sell the property before obtaining a new VA loan. The homeowner cannot occupy two homes at the same time. VA requires the homeowner move in and primarily occupy the home within 60 days of closing. VA does not allow veterans to purchase vacation or investment properties with their benefits.

To free up the entitlement for the veteran to purchase another home, the veteran refinances the current VA mortgage into another loan program. The veteran may refinance at any time without any penalty, as VA loans do not require prepayment penalties. The homeowner may refinance a mortgage into a loan insured by the Federal Housing Administration, or FHA, a conventional loan or virtually any other loan program available.

When a homeowner buys the new home using the VA home loan guarantee, she must pay funding fee the for the VA loan. When a homeowner purchases a first home, the funding fee is lower than when she purchases a second home. The initial funding fee for all veterans is always lower than any time they subsequently use the benefit. The VA uses the funding fee received from the borrower as a way to fund the guarantee program and reimburse banks for their losses due to foreclosed VA loans.

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