Va Loans And Second Homes
Federal regulations limit loans guaranteed by the Department of Veterans Affairs to primary residences only.
However, primary residence is defined as the home in which you live most of the year.
Therefore, if you own an out-of-state residence in which you live for more than six months of the year, this other home, whether its your vacation home or retirement property, becomes your official primary residence.
For this reason, VA loans are popular among aging military borrowers.
How Does A Va Loan Work
On the surface, a VA loan works like any other home loan program. You fill out a loan application, provide proof you can repay the loan based on your earnings and credit history and verify you have enough money saved up to cover closing costs.
However, there are some big differences between VA loans and conventional or FHA loans, especially when it comes to how costs and fees are charged and paid.
You have to verify your military service history. The VA home loan benefit is only for military borrowers that have served enough time to meet eligibility requirements.
You dont pay any mortgage insurance. Most low- or no-down-payment loan programs require mortgage insurance, which covers lenders in case you default on your payments and they have to foreclose. The VA doesnt require mortgage insurance on any of its loan types.
Youll pay a VA funding fee. One of the downsides to a VA loan is having to pay the VA funding fee cost of 0.5% to 3.6%. The funding fee is charged to offset the cost of the VA loan program to taxpayers and is typically rolled on top of the loan amount, even if you make no down payment.
Your lender cant charge you more than 1% in closing costs. VA lenders are limited to charging 1% of your loan to cover their fee. That saves you money at closing and makes VA closing costs more affordable than other government-backed loan programs.
Can I Refinance A Va Loan
The VA offers two refinance options, available exclusively to VA borrowers.
The VA Streamline Refinance also sometimes known as a VA Interest Rate Reduction Refinance loan allows qualifying military borrowers to drop their interest rate quickly and affordably, often without an appraisal or income/asset verification.
The VA cash-out refinance allows qualifying military borrowers to convert their home equity into cash. Sometimes borrowers can access as much as 100% of the equity in their current home.
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Can A Child Use A Parents Va Loan
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Veterans and service members can turn to VA loans if they need financial assistance for a home purchase. What about their children? Can a child use a parents VA loan?
Can I use my fathers VA benefits? No. You need to be a veteran, current service member, or a surviving spouse of a veteran if you wish to qualify for a VA loan. However, the government has set various programs in place to help the spouse, child, and even parents of a veteran or service member.
For instance, a GI Bill benefit can be transferred to a dependent child or spouse. But this isnt the case with a VA home loan. It cant be transferred to either dependent or non-dependent children. Under the VA rules, only the eligible veteran and the legally married spouse can benefit from it.
VA loan benefits dont extend to the children of veterans or service members. The coverage only applies to the veteran or service member, and the spouse. Ifeligible and approved, the spouse may be able to use the VA loan benefit after the death of the veteran or service member.
Can A Va Loan Be Used For A Second Va Loan
Yes, you can use the VA loan benefit to buy a home more than one time. However, veterans seeking a second VA loan will need to consider the various stipulations. The VA loan program was designed to help military borrowers get into primary residences, not to purchase vacation homes or investment properties.
One way to buy another home with a VA loan is to prove a net tangible benefit. These reasons may include moving closer to a new duty station or downsizing your mortgage payment due to a financial change.
Additionally, you may use a reduced entitlement to acquire a second VA loan. Or apply for a restoration of your entitlement to take out a second VA loan.
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Divorce Can Complicate Occupancy And Entitlement On Existing Va Loans
Divorce is possibly the most complex issue when it comes to civilian spouses and VA loans. If youre an ex-spouse of a service member, youre not eligible for a new VA loan in the same way a surviving spouse would be. Thats pretty straightforward.
It can get complicated when divorce is involved after you have a VA loan together. One way in which VA loans are different from other types of home loans is that the VA has very strict occupancy requirements on who can and cannot live in a home purchased using a VA loan.
However, if the civilian spouse is a cosigner, theyre eligible to remain in the home without the service member living there. The issue arises when it comes to entitlement with a VA loan. The service member cannot restore their entitlement unless their ex-spouse refinances and/or pays off the VA loan in full.
Youve Paid Off Your Previous Va Loan
If you have used a VA loan in the past and youve paid off your entire mortgage, then you should have no trouble getting another VA loan. Youll still have to go through the entire application process, and you will have to restore your entitlement .
It is important to note you need to restore your entitlement before you can apply for another VA loan.
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Va Loan Requirements: Complete Guide To Eligibility
VA loans allow veterans, active military, and eligible spouses to get a mortgage with no money down.
Edited byChris JenningsUpdated January 5, 2022
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
VA loans are for qualifying military service members and eligible surviving spouses, and their biggest draw is that they allow you to buy a home with no money down.
With a VA loan, you also wont have to pay for private mortgage insurance. Instead, VA borrowers pay a funding fee at closing or roll it into their loan.
Heres what you should know about VA loans before you apply:
Va Streamline Refinance Loans
Military borrowers who want to refinance a home, move out, and rent it out to others have their best option using a VA Streamline Refinance loan, which does not require you to occupy the home as your primary residence, but simply requires you to legally state you HAVE USED the home as your primary residence in the time leading up to the refinance loan. Under the stated terms of your VA home loan for Streamline refinances, you would be free to refinance, move out, and rent to new tenants.
Yes, you read that correctlythe VA does not require you to maintain occupancy in a property refinanced with a VA Streamline loan, which is designed to give the borrower a specific, tangible benefit when refinancing such as a lower interest rate, a lower monthly payment, moving out of an adjustable interest rate loan, etc.
There is a caveat, though.
VA Streamline Refinance loans are ONLY for those with existing VA mortgages. You cannot refinance a non-VA home loan using a VA Streamline refi loan. VA Streamlines feature no VA-required credit check and no VA-required appraisal, which makes them unique among VA refi loans.
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What Happens To A Va Loan If The Borrower Dies
If the veteran or service member dies before the VA loan is paid off, the surviving spouse or co-borrower will continue to make the payments.
If the borrower dies and he has no spouse or co-borrower, then the responsibility for the VA guaranteed mortgage falls on the veterans estate. The profits of the estate will be used to pay off the mortgage debt. The VA will not pay off or forgive the home loan.
If for some reason the spouse or the co-borrower encounters problems in paying off the home loan, the responsible individual must get in touch with the lender right away. The lender may be able to help by offering solutions, such as creating a new repayment plan, special forbearance , or a VA loan assumption.
A VA loan assumption is an option if, for some reason, theres a need to get out of the VA loan. Additionally, this option is worth considering if youre a son or daughter of a veteran or service member who wants to take out a VA loan but cant do so because this type of debt doesnt extend to the children of veterans or service members.
What If I Dont Meet The Minimum Service Requirements
You may still be able to get a COE if you were discharged for one of the reasons listed below.
You must have been discharged for one of these reasons:
- Hardship, or
- The convenience of the government , or
- Early out , or
- Reduction in force, or
- Certain medical conditions, or
- A service-connected disability
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What Are Va Loan Entitlements
The VA typically will guarantee 25% of your loan amount if youre not making a down payment. This is called your VA loan entitlement. In most parts of the country, your entitlement is $113,275, which means you can borrow up to $453,100 without a down payment. If you want to borrow more than $453,100, you will need to make a down payment.
If you havent used a VA loan before, youll receive whats called full entitlement. A VA loan entitlement is the maximum loan amount the Veterans Administration will pay your lender if you default on your mortgage loan. This guarantee reduces the lenders risk of approving a loan for a borrower who may have no down payment and a below-average credit score.
Your entitlement can be higher in high-cost areas like California and Hawaii. You may have less than a full entitlement if you already have a VA home loan or if you have gone into foreclosure on a previous VA loan. Not having a full entitlement limits the amount you can borrow without a down payment.
Down Payment And Assets
VA loans are one of the few loan options that dont require a down payment. Your lender may have specific requirements for a no-down-payment VA loan.
For example, they may require that you have a higher credit score if youre putting down less than 10%. The requirement to purchase a home with a VA loan through Rocket Mortgage® with no down payment is still a median of 580.
Its important to keep in mind that no down payment doesnt mean zero cost. Here are some other VA loan costs, akin to closing costs due at a conventional mortgage closing, to be prepared for, even if youre putting 0% down: Heres a glance at just a few of them:
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Why Is It Difficult To Use Va Loan To Buy A Foreclosed Home At An Auction
In an auction, there is a requirement that the bidder must pay in cash. If you are the bidder and the bid is accepted, you need to deliver the cash payment within 48 hours. If you fail, the property will go to the next bidder. Its pretty impossible to close a loan within 48 hours. VA loans cannot be processed with a large amount of money with such a little time.
Can I Get A Va Loan To Purchase A Cooperatively Owned Apartment
Generally, using a VA loan for a cooperatively owned apartment is not possible. Statutory lien requirements, and the fact that all or almost all of the members of the cooperatively owned apartment must be Veterans who are using their entitlement, have presented considerable difficulties in obtaining VA financing for these purchases.
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Va Loans Vs Conventional Loans
Borrowers with good credit and at least a 20% down payment often choose conventional loans to buy or refinance homes. However, there are conventional loan programs that require down payments as low as 3%, if you cant or simply dont want to use your VA loan eligibility. Heres how these two loan types stack up side by side:
|VA funding fees up to 3.6% of the loan amount|
|Lender costs capped at 1% of loan amount||Higher appraisal costs than conventional or FHA loans|
|Options for no income verification/no appraisal refinance||Cant finance a second home or investment property|
What Are The Va Home Loan Limits By Year And County
Find the VA home loan limit for the county your property is in.
2022 VA home loan limits
VA home loan limits are the same as the Federal Housing Finance Agency limits. These are called conforming loan limits.
Scroll to the Previously Announced Loan Limits section
Review the table with past loan limit information.
Find the year with the limits you need
Years are located in the first column, labeled Description.
Refer only to the One-Unit Limit column in the table
This is the only column that applies to VA home loan limits.
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Verifying Your Va Loan Eligibility Status
Lenders need what’s known as a Certificate of Eligibility to verify if a Veteran meets the minimum service requirements. Your COE provides the lender with confirmation that you qualify for VA loan benefits.
For most Veterans, this is an easy step. Your lender can typically pull your COE with only your social security number and date of birth.
In some cases, the process may be more complex. However, the important piece is you don’t need this document before applying for a VA loan.
Speak with a Home Loan Specialist to get your COE today. The process typically takes minutes to complete and ensures your home financing moves forward without delays.
No Down Payment On A Va Loan
Most home loan programs require you to make at least a small down payment to buy a home. The VA home loan is an exception.
Rather than paying 5%, 10%, 20% or more of the homes purchase price upfront in cash, with a VA loan you can finance up to 100% of the purchase price.
The VA loan is a true no-money-down home mortgage opportunity.
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Does A Coe Mean You Are Guaranteed A Va Loan
No, having a Certificate of Eligibility doesnt guarantee a VA loan approval.
Your COE shows the lender youre eligible for a VA loan, but no one is guaranteed VA loan approval.
You must still qualify for the loan based on VA mortgage guidelines. The guarantee part of the VA loan refers to the VAs promise to the lender of repayment if the borrower defaults.
Secure A Certificate Of Eligibility
Youll need this to be eligible for your VA loan. Youll need to provide proof of your military service based on your status.
VA-approved lenders, like Rocket Mortgage, can help you get your VA certificate of eligibility quickly with proof of service.
Tell your lender you need your certificate of eligibility early in the process so they can help you get it.
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How The Va Bonus Entitlement Works
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs exclusively for active-duty military service members, veterans and eligible surviving spouses to buy or refinance a home with no down payment or mortgage insurance. The VA does not lend money but guarantees up to 25% of the loan this guarantee is called an entitlement.
The VA bonus entitlement can help you finance a home with a purchase price of above $144,000 possibly without a down payment or to purchase a second primary residence. The VA loan entitlement refers to the maximum dollar amount that the VA will pay to your mortgage lender if you go into mortgage default, or fail to repay your loan.
With VA loans, there are two forms of entitlement: basic entitlement and bonus entitlement. The basic entitlement is $36,000, or 25% of $144,000. For homes with a sticker price above $144,000, the VA provides a bonus entitlement worth 25% of the home loan amount. Lenders will let you borrow up to four times the entitlement with no down payment.
Full vs. remaining entitlement:
Todays Va Loan Rates*
*Current rates provided daily by partners of the Mortgage Reports. See our loan assumptions here.
VA rates are more than 25 basis points lower than conventional rates on average, according to data collected by mortgage software company Ellie Mae.
Most loan programs require higher down payment and credit scores than the VA home loan. In the open market, a VA loan should carry a higher rate due to more lenient lending guidelines and higher perceived risk.
Yet the result of the Veterans Affairs efforts to keep veterans in their homes means lower risk for banks and lower borrowing costs for eligible veterans.
- Cadets at the U.S. Military, Air Force or Coast Guard Academy
- Midshipmen at the U.S. Naval Academy
- Officers at the National Oceanic & Atmospheric Administration.
A minimum term of service is typically required.
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