Many applicants already with a VA loan are constantly asking this question: Can you have more than one VA loan? Some may argue about this concept and have answers for why you can or cannot. How you go about obtaining your next loan after the first may vary depending on how you go about the process and terms related to your first loan. Some suggest refinancing the first loan before applying for the second. Others say you just need to work with an experienced VA loan officer to help you obtain the next loan. Then you have the element of being “entitled” to another loan. So what do you need to know when considering multiple loans and understanding whether you qualify for the option?
Certain Situations May Qualify for a Second VA Loan
Military families are known to move and relocate more often than civilian families. In this case a military family may be interested in trying to sell their home in order to take advantage of benefits offered through the VA. Yet, this may not be the case. Certain situations in this case could qualify for a second loan; allowing the borrower to have two loans at the same time. If the move falls under regulations related to PCS or Permanent Change of Station orders, the borrower may qualify for another loan.
Sometimes borrowers decide to keep their first home. They may choose to earn income with it by renting it out to another family (rental income). They may also decide to just hold on to the home until the market is better before trying to sell. If you decide to retain the first property with a VA loan you will need to provide evidence you can pay both loans and ample entitlement. In this case you need to qualify for what is called 2nd-Tier Entitlement.
What Are Entitlements?
Previous VA loan applicants are familiar with entitlements, also known as basic (first) entitlement and bonus entitlement or Tier 2 entitlement. This is what the lender will receive based on what the VA agrees to repay if loan default occurs. While this is an option to think about, many applicants are not aware of this entitlement, which basically complements the amount received from the previous loan or first tier. The entitlement concept basically gives an overall idea of how much can be borrowed. You can review this in further detail with a VA loan specialist. Keep in mind if you have used most of your entitlements through the first tier this could affect how much of your second tier is available for the second loan.
Since there are two types of entitlements it helps to learn more about each one. They each have different dollar amounts the federal government will pay toward defaulted VA loans. They each vary depending on how much you borrow. The basic entitlement amount is $36,000 and the bonus or Tier 2 entitlement is $144,000 and up. There may be limits placed by the VA depending on county. It may not be possible to have more than one VA loan in a city depending on regulations related to having the home occupied. Veterans may be eligible to receive a loan worth roughly 4 times of their eligible entitlements. In this case the applicant may be required to make a down payment equal to a specific percentage of the property value or sale price.
Ability to Repay Second Loan
Getting a second loan means you will need to provide proof you can make payments on both loans. If you are applying for a second loan the process is very similar to applying for the first. There are credit and income verifications made with basic VA standards of the lender being met by the borrower. The loan like the first is guaranteed by the federal government, but this doesn’t mean you will automatically get approved. There are a number of elements lenders will look for during your second loan approval:
• Assets and income you currently have.
• Proof of employment or current status.
• Additional income you may have including self-employment or residual.
• Review of credit report and/or history.
• Current payments being made toward first mortgage and other mortgages you may have.
• Expenses related to current mortgage and property taxes paid.
• Outstanding debt obligations including alimony and/or child support.
• Ratio of debt-to-income.
For some military personnel the option to obtain another VA loan can be helpful. PCS orders can come quickly and it helps to have this option to ensure you can fulfill orders when received. Those in this situation may learn about housing options they would have never known about otherwise. To understand in detail what is necessary review interests with a VA loan specialist or approved lender.
Is This the Same as Being Entitled to Another Loan?
Can a person be entitled to another VA loan? This aspect explores the concept of using VA benefits again to obtain a federal loan. It is suggested you can use your VA benefits again as long as specific qualifications are met. In this case you need to have your house paid off or sold, another veteran can assume the house, or you could own the home with a balance remaining on the mortgage. These are the most common scenarios experienced when determining if another loan entitlement can be obtained. It is common for the loan (mortgage) to be paid in full when the house is sold. If the house is sold and it was financed with a VA loan, the borrower must complete VA Form 26-1880 or VA Form 26-1817 for surviving spouses. Another VA loan can be applied when entitlement is reinstated.
Can Entitlement Be Restored with Assumed VA Loan?
It depends. When a VA loan is assumed or an “assumption” occurs one of two things has happened. The mortgage can be assumed by the buyer with the use of the owner’s (seller) entitlement. Or, the buyer has entitlement that is used in place of the seller’s. If the first situation occurs the seller will not be eligible for entitlements to be restored until the loan is repaid. Entitlement replacement is an option to consider if the VA loan assumption occurs if the seller purchases another home using a VA loan.
Multiple Loans Are Unlikely If Others Are Unpaid
Experts say it is possible for borrowers to have two VA loans at the same time, but this is seldom. This is because many who are entitled to a VA loan with full entitlement are backed with a higher amount from the VA. Meaning, many veterans have entitlement left over while obtaining their first loan using their benefits. There is an exception to the rule of having the home paid in full and disposed; military reassignment. This means if the borrower has enough entitlement remaining from the previous loan, they could obtain another loan without the need to sell their home or pay it off. Credit and income details need to be reviewed for approval.
Additional Details to Know about Multiple VA Loans
Many myths and conceptions about the idea of having multiple VA loans make the situation even more confusing. Discuss concerns about the loan process with an approved or experienced VA loan specialist. Much confusion lies within VA entitlements. This includes the amount of money the federal government will pay if the borrower doesn’t make payment and defaults. It is possible to qualify for another VA loan even if you went into default in the past with a previous loan. You can also qualify for a VA loan if you went into foreclosure.
If foreclosure occurs with a VA loan you may be eligible to reapply after two years. There are lenders that have no wait period but you should do your research first to learn typical wait periods. Foreclosure could affect entitlements you would have had left over in the loan that defaulted. In this case the lender reviews what, if any, entitlements remaining. Once you understand what entitlement is leftover you can determine if you can get another loan.
Check with lenders regarding debt-to-income ratio (DTI). This may vary depending on benchmarks set by the lender and the VA to ensure the loan process is fair to parties involved. The VA may have a certain percentage and the lender could have theirs set higher. You can check the ratio percentage with both the VA and the lender. Then discuss your findings with a VA loan specialist to understand your options.
You may have VA loan entitlement leftover depending on how much your first VA loan was for. This may get to be confusing if you want to take out another loan or refinance your first. The amount you borrow depends on how much entitlement you use and what is still available. You will need to review the loan amount you need to borrow up to in order to satisfy the entire amount of entitlements. Other words you will need to sell the home or pay off the mortgage to obtain full entitlement again.