How many times can you use VA loan benefits?
The good news is that you can use your VA loan benefits as many times as you like. Indeed, in some, limited circumstances, it can even be possible to have more than one VA loan at the same time.
But the rules can be complicated. So read on as we break them down.Click here for today's mortgage rates.
How VA Entitlement Works
Since 2020, there have been no formal loan limits on VA loans. This means you can borrow as much as you want using a single VA loan, providing you can prove you can comfortably afford the monthly payments, are a responsible borrower (with an appropriate credit history) and have whatever assets your private lender requires for the loan amount you want.
Certificate of Eligibility (COE)
To qualify for any VA home loan, you’ll need a certificate of eligibility (COE) from the VA, which will indicate your remaining “entitlement.” That’s the dollar sum that’s used as the basis for calculations about your borrowing capacity.
If you already have a large current loan, it should say your remaining entitlement is $0. This means you can’t borrow any more until you sell your home and pay back your existing mortgage in full.
You may be able to borrow again if you agreed to a “short sale” with a previous lender. But if the previous short sale was on a VA loan, you won’t be able to use that entitlement unless you pay back any shortage in full. Not many people are in the position to do that after a short sale, though.
If the short sale was on a small loan amount, you may have remaining entitlement. The best move is to have a lender pull a COE for you to see if there is any current entitlement amount. If so, you may be able to purchase again.
Two VA Home Loans at the Same Time
Many VA borrowers who buy ordinary family homes use way less than their full entitlement. And some can use what’s leftover to acquire a second VA loan.
If you’re posted away from your existing home in a permanent change of station (PCS), you can typically apply to use your remaining entitlement to purchase a different property close to where you’re moving. And you can then rent out your existing home.
Sometimes, the remaining entitlement isn’t quite enough to cover the loan required. But if you can scrape together a modest down payment, you can use that to bridge the gap.
The math can get complicated with this. If you think you may want to apply, you should talk to a VA loan specialist early on in the process.
One-Time Benefit Restoration
There’s another exception to the rule that says you must sell your home to restore your VA entitlement. And this one arises more commonly among veterans.
Suppose you’ve completely paid off the loan on your existing home, or refinanced into another non-VA loan, and you want to keep the house. You can ask the VA for a one-time benefit restoration. That would let you retain your current home (perhaps as a rental property or a vacation home) and take another VA loan to buy another property.
But if you want your benefit restored, you must keep two things in mind. First, you’re not allowed to borrow for a home that won’t be your primary residence. This means you must move into the new home you are purchasing. And, second, this is a one-time opportunity. Once you’ve restored your benefit in this way, you can’t do it again.Ready to buy a home? Start here.
How To Restore VA Loan Eligibility
Obviously, the most widely used way to restore eligibility is to sell the home and use the proceeds to pay back the mortgage. Next time you apply for a COE, it should show your original entitlement as available again.
Or, as mentioned above, you can get a one-time benefit restoration.
But there is another path to re-using your VA benefit: loan assumption.
With a loan assumption, someone else will take over — or “assume” — your VA loan. That someone has to be a person with a VA COE who also has enough income and a high enough credit score to qualify for the loan.
And the “buyer” (it’s an assumption, not a sale) simply takes over the mortgage as it stands. So he or she gets the benefit of the payments you’ve already made. And that person assumes legal responsibility for future ones as well as taking ownership of the home. You get your benefit restored on your COE. Naturally, an assumption has to be done legally and registered with the VA.
Assumptions used to be more common, back when mortgage rates were rising. The “buyer” got a mortgage locked in at an old, lower rate.
However, current mortgage rates are near all-time lows. As a result, the huge advantage for those assuming mortgages no longer applies. However, assumptions could grow much more popular again, if and when mortgage rates start to rise.
VA Loan Benefits
The VA pays lender losses in the event of a default on a VA loan. This federal backing offers additional confidence to lenders, who are then able to offer a number of huge benefits to qualifying borrowers.
VA loan benefits include:
- No down payment. There is no minimum down payment to qualify for a VA loan, though you can make one if you choose.
- Low mortgage rates. VA mortgage rates are often the lowest of any mainstream mortgage interest rates.
- No mortgage insurance. After you pay the initial VA funding fee (which you can finance into your mortgage), you never pay a cent in mortgage insurance.
- Flexibility. You can buy most sorts of homes with a fixed- or adjustable-rate mortgage over 15, 20 or 30 years.
- Easy VA loan requirements. Even those with lower credit scores and higher existing debts may be able to qualify for a VA loan.
- Assumable. As described above, these loans can be assumed by someone buying your home in the future.
- No prepayment penalties. Want to pay back or refinance early? No problem. With VA loans there are no penalties for early payments.
- Capped closing costs. The VA does not allow the veteran to pay the escrow fee and some other fees that other home buyers must pay.
This substantial list of benefits means that a VA loan is often the most cost-effective option available to qualifying borrowers.
Can I have two VA loans at the same time?
It’s possible but not all that common. The program is intended to help service members get primary residences, not second homes or investment properties. You may be able to have two mortgages if you have sufficient unused entitlement and are subject to a “permanent change of station” order. And you can apply for a one-time benefit restoration if you’ve finished paying off your original VA loan.
What is the VA funding fee?
You have to pay a funding fee of 2.3% of the purchase price for your first VA loan, and 3.6% on subsequent loans. The funding fee allows the VA loan program to be self-sustaining. The fee can generally be financed and is far less expensive than the mortgage insurance associated with other low down payment loan types.
Are VA home loans really all that special?
VA home loans are widely acknowledged to be the best available. If you’re an eligible borrower, it is highly likely a VA loan will be your smartest choice.Click here for today's mortgage rates.