Multiple VA Loans?

Question

Good Morning All! Me and my wife recently purchased a new construction townhouse as our primary residence with a VA loan as she is a veteran of the U.S. Navy. My question is: If we move out after a year or two and rent the townhouse, do we have to refinance the loan? If not, are we able to use another VA loan to purchase a new primary residence? The VA loan terms were very favorable. 0% down, 0% origination fees. I read that you cannot use a VA loan to purchase investment property, but this would be a semi work around to that hurdle. Thanks!

Bryan O. · Answer

@Andrew Hernandez you do not have to refinance the VA loan. After your 1 year owner-occupancy is over, you can keep that loan on the books as long as you want. You may also have more than 1 VA loan at a time. Search around for "second tier" VA loan. This allows you to subtract the first loan from the total entitlement leaving you with an amount that can be used for another purchase. @Edward B. any level of disability higher than 0% will waive the funding fee.

You cannot use the VA loan to purchase investment property directly, but you can use it to buy a property that works as an investment 1 year ahead ;) Just as with your current home, you buy it, live in it for the 1 year, then move out and start renting. It's pretty amazing.

You cannot use the VA loan to purchase investment property directly, but you can use it to buy a property that works as an investment 1 year ahead ;)  Just as with your current home, you buy it, live in it for the 1 year, then move out and start renting. It's pretty amazing.

Ian Lord · Answer

I have a VA disability rating and have two VA loans. There is no funding fee on subsequent loans as long as she has that status. I was even able to get a refund of the fee on my first home since I filed for disability before the closing date.

Albert Bui · Answer

HI Andrew,

You do not have to refinance your current VA loan however if you want to restore her full VA entitlement you may consider refinancing it.

You'll want to look at the VA limit in the county that you bought your home in currently and will want someone who is pro with VA loans to look at how much entitlement she used in buying that home for 0% down and 0% origination as you had mentioned.

Your loan amount relative to the county limit (expressed as a percentage) is how much of your entitlement you used. So for instance if your loan is 150,000 and your limit was 450,000 then you used 1/3rd of your entitlement buying this home as VA with 0% down.

Why is this important?

If you used 1/3rd then you'll have 2/3rds of your entitlement left to use VA financing again (primary residences only) to buy your new home.

If you buy in a county where 2/3rds (in this example) of the VA county limits is sufficient to buy your house with 0% down then that means you could technically buy another 0% down VA home.

When the new loan you're seeking is higher than 2/3rds of the county limit is then you'd have to bring in 25% of the difference.

Example:

2/3rds of the county limit of lets say 450,000 for easy calculating is 300,000 and the home you want is 400,000 sales price or loan with 0% down. This is 100,000 difference so you'd have to bring in 25,000 down payment to purchase this home which equates to approximately 6.25% down payment VA due to some of your entitlement still being tied up in your first home (assuming you did not refinance your first home to conventional).

Hope that helps, partial entitlements can be a complicated part of VA financing that most banks rarely ever deal with.

Albert Bui · Answer

Correct min disability to waive the funding fee is 10% it's labeled on a veterans certificate of eligibility (CoE). Most don't have this benefit but certain circumstances can waive the VAFF. Another situation is a surviving spouse of a fallen veteran the va benefit can transfer to the surviving spouse with waived funding fee.

Tim Greenfield · Answer

Interesting, I guess VA loans have changed over the years. I had one loan and it was paid off by a refinance. I was told at that time ( 2005) time frame that it was usually a one shot deal but once in a lifetime I was told I could appeal and get my full benefit back. I did so and have full benefit. The tiers were never explained to me. I need to check into this as an opportunity.

Albert Bui · Answer

Glad to have been of help, yes 25% of the remaining 62,500 is around $15,625 so you'd be in effect be buying a 250,000 home with only 15,625 dollars in this hypothetical example. This is in effect 6% (approx) down payment. So just make sure you compare this options with conventional financing because you can use 5% down with conventional.

You can price them apples to apples to make sure you're chosing the right option.

Keep in mind if this is your second use VA has a huge 3.30% VA funding tacked on up front.

To make it apples to apples you'll have to hike the VA rate up from where it is now (around 3.375% to about 4.00%) to generate enough lender credit to payoff this 3.30%. The key to this is raising the rate to generate 3.30% or more in lender credit so we take this to payoff your VAFF so that you dont have to finance it into your loan.

What happens if you dont absorb this 3.30% VAFF (VA funding fee) is that it will be financed into your new loan.

A lot of Vets aren't advised of this VAFF or alternative strategies to avoid it. This VAFF is in effect 3.30 points (second use) potentially, however if you put down your 6% your VAFF will drop to 1.50% which is drastically lower. The 3.30% VAFF only applies to 0% down second use of VA.

At 1.50% VAFF you'd probably only need to take the rate to 3.50 or 3.625% to put this VA loan on "par," with an equivalent conventional loan. In most cases the VA loan will still be net net better option for the borrower at the end of the day.

Andrew Hernandez · Answer

My wife receives disability and we were not subject to any funding fee. I hope that is the case for the 2nd loan.

Andrew Hernandez · Answer

Thank you very much @Albert Bui. The county limit for Miami-Dade is $417,000. Your post led me to do some calculations and also discover this helpful PDF: VA Guaranty Calculation Examples.

As it turns out my wife and I can purchase another home with a loan of up to $153,237 with 0% down (enough for a medium sized shed in Miami). If we wanted a loan for $250,000 we'd have to come up with the difference of 25% of the loan amount ($62,500) minus our remaining entitlement. See attached pictures where I used our actual numbers.

Andrew Hernandez · Answer

Thank you very much @Bryan Otteson and @Edward B. I will have to research the second tier concept further to see what the amount is for my wife given our area. From what I have read so far, the Certificate of Eligibility may not stipulate the secondary layer of entitlement.

Edward B. · Answer

@Andrew Hernandez,

Your VA benefit is for a specific amount. You can in fact have more than one VA loan but they will not go over that amount and the math they use figure out what you rate is not is not particularly clear to me. So you may be able to buy two $100k houses but you will not be able to buy two $300k houses. You may be able to do $100k and a $200k, but I'm not sure. Like I said the math is not linear.

So, to answer your question, it is possible but it depends on what you are buying and I am not sure how it works. Otherwise, you do have to refinance into a conventional loan in which case you can reuse the VA loan over and over. It does get more costly when you reuse it though. The VA funding fee you pay on 2nd and 3rd uses is much higher than the first unless you are a disabled vet with a certain rating or higher, I think 50% but it may be 30%.

Multiple VA Loans?

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