A Quick Guide to Understanding the Second VA Mortgage

The U.S. Department of Veterans Affairs backs VA mortgages also known as VA Loans for military families since 1944.  A VA Mortgage helps families purchase single-family homes through private lenders.

There are a lot of misconceptions out there about the VA loan program or the VA Mortgage. Two of the most common are rooted in the concept of VA entitlement, which is basically the amount of money the agency guarantees they will pay back the bank in case if you foreclose or short sale the home. It is possible in certain cases to have 2 VA home loans at the same time. And you can definitely qualify for a VA Mortgage even if you defaulted on one in previous years.

Understanding Entitlement

Eligible veterans have a primary entitlement of $36,000 and an additional, secondary entitlement of $68,250. The two entitlements together make $106,025. That’s the maximum amount of VA loan entitlement for borrowers in most of the country; in high-cost counties, the amount is even higher. The VA’s formula dictates how much entitlement you use with the initial loan, and thus, additional entitlement can be available. And even if the entitlement is $0 after the purchase of the first house you can still use their second-tier entitlement, however, there will be standard minimum and maximum loan limits that the potential borrower can use to buy the second property. When you purchase a home using a VA Mortgage, some or all of your entitlement becomes tied up. For example, if you have $50,000 of entitlement tied to your first VA Mortgage loan and you want to buy a second property for $200,000 in a county with a $424,100 loan limit. Calculations for a sample access to a second VA loan are: $424,100 x 25% = $106,025 Maximum Guaranty $106,025 – $50,000 = $56,025 Entitlement Available $56,025 x 4 = $224,100 Maximum Loan Amount with No Down Payment In this case you would be able to secure a loan of up to $224,100 without having to make any down payment.

Can You Have More than One VA Mortgage at one time?

Though common understanding suggests that only one VA loan can be used at a time, many families can actually qualify for a second VA loan even while still repaying the first mortgage. A second VA loan while still holding a first VA loan is referred to as either second tier eligibility or bonus entitlement. Just as with the first VA loan, a second VA loan comes with its own set of requirements. However more strict requirements are put in place; therefore not all applicants that qualify for a first VA loan will qualify for a second one. It will depend on factors such as loan eligibility remaining for the individual borrower as well as the borrower’s debt to income ratio. Having a renter in a lease to cover the monthly payments of the first VA loan can go a long way toward making this process work.

What are the Advantages?

The greatest advantages of the second VA loan include a lower or no down payment. In addition, there isn’t a minimum credit score requirement for VA loans. However, most lenders that originate VA loans still require a minimum credit score of 600 or higher. Furthermore, VA loans do not require you to pay mortgage insurance.  The VA does collect a funding fee which ensures your loan against default.

Types of VA Loans

VA loans can be both fix-rate mortgages and adjustable-rate mortgages, with the 30-year fix, 15-year fix, and 5/1 ARM common options. You will owe a VA funding fee of 0% to 3.3% of the loan amount.  You may finance this into the total loan amount. I the case of a bankruptcy, foreclosure and short sales you should keep in mind that most lenders require a waiting period before you can apply for another mortgage. However, in this case, you should also consider the VA entitlement. If a property has been foreclosed, or the house is disposed through a short sale, part of the veteran’s eligibility is used up. Therefore the veteran and the lender have to determine how much eligibility is remaining.  A decreased eligibility may mean that you will have to come in with a down payment of some kind.  As opposed to if you have full entitlement, then chances are you won't have a down payment.  Unless your VA purchase price is in the jumbo range.  The jumbo range is $424,100 in Clark County as of now. In conclusion, VA loans come with a number of benefits and advantages that can make them a solid choice.