VA home loans are best known for providing Veterans and service members with a no down payment purchase option. Although, sometimes VA loans require a down payment. For instance, there could be a VA loan down payment required if a buyer would have two VA loans at once. Have two VA loans at once? Absolutely! It is very possible to use a 2nd VA loan with no money down while keeping another VA loan. But as the purchase price level increases, a down payment could be required. Having two VA loans at once is called accessing a Veteran’s “bonus entitlement”, which is also called 2nd Tier Entitlement. So in this article, we will not only discuss how to obtain a 2nd VA loan but also reveal a little known secret for obtaining the down payment.
VA Loan Down Payment Solutions
Ok, are you ready? This article will even blow the minds of many experienced loan officers! Why? Because everything we know says that the down payment must come from the buyer. That is why lenders often have to document general deposits into bank accounts. A major reason is to make sure the seller isn’t giving the down payment to the buyer under the table. But a VA loan down payment is a unique one! Let’s discuss.
Lacking a VA loan down payment? Call us for a possible solution!
How to Get a Down Payment When Using a VA Bonus Entitlement
As mentioned, using a Veteran’s bonus entitlement to have two VA loans is a very beneficial mortgage tool. Although, at a certain price point, a VA loan down payment could be required. Determining if a down payment is necessary or not depends on the amount of entitlement used and the purchase price for the new home. In these cases, our team will determine a borrower’s entitlement as well as eligibility. Part of this process is determining if a down payment is required. So what are the benefits of using VA a second time around?
When is Bonus Entitlement or 2nd Tier Entitlement Beneficial?
- Converting a home with a VA loan on it to a rental
- Previous VA foreclosure, short sale, or compromise sale
- Turning a current home that has a VA loan on it into a second home
- Buying another primary residence with potentially no money down
This is quite a lot of benefits and it is easy to see why many would prefer to use VA again!
Converting a Primary to a Rental
Either by choice or necessity, converting a primary house into a rental could take place. This is especially a common occurrence for military experiencing a permanent change of duty station, otherwise knowing as PCS to a new base. The great thing about VA guidelines is that it will allow up to 100% of the new monthly lease amount towards covering the mortgage on the rental property. But VA will only allow the new rental income up to the current total monthly mortgage payment. So if the mortgage payment (including taxes and insurance) on the new rental is $1000 and the rent will be $1100, then $1000 could be counted. Otherwise, this would be a wash of the mortgage payment which helps the buyer more easily qualify for the new loan.
Using VA to purchase a home with a previous VA short sale, foreclosure, or compromise sale
For one reason or another, bad things happen sometimes. This is no different in the homeownership realm. So what if the government takes a loss because of a previous foreclosure, short sale, or compromise sale? Believe it or not, it is possible to get another VA mortgage! Now, the amount of the loss does affect the Veteran’s entitlement available. Then, the amount of entitlement used affects the amount which can be borrowed on the new VA purchase. A benefit is that from a loan amount of $144,000 on up, a Veteran may still get 100% financing. One of our VA loan officers would calculate if a down payment is required or not. Ultimately, being able to buy another home using VA with potentially little to no down payment after a negative housing event is quite the benefit.
Converting a Primary to a Second Home Using a VA Loan
What if a VA borrower wants to keep their current house as a second home and buy another primary residence? Sometimes a homeowner with a VA loan may decide to keep the current residence as a vacation or second home. It is not a requirement to refinance to another type of mortgage. Although, there could be a benefit in doing this as it could free up the entitlement. Obviously, if the property will be a second home there is no rental income to be calculated. So the Veteran must qualify using the entire payments of both homes, along with any other debts. In order to buy another primary residence using VA, it must make sense. So buying a similar home down the street may not fly. Yet if the home is in a resort area and the buyer is moving to another area, this could be allowed. In these cases, a good explanation letter is very helpful to prove why the new home will be a primary residence.
Buying Another Primary Residence with Potentially No Money Down
Basically on all of the above scenarios, it is still possible to buy a home with no money down. So that is just one of the beauties of a VA loan. Whether there is a rental, second home, or previous derogatory housing event, getting another VA loan with no money down is possible. The best thing to do is just ask about qualification and give us as much details as possible about your scenario. Worse case scenario is a buyer doesn’t qualify now but is able to get detailed advice to qualify down the road. So why not ask now?
Reminder: If the property with a current VA loan on it is being sold prior to the new purchase, the sale will clear up the Veteran’s entitlement being tied up by that VA mortgage
Example how to calculate 2nd Tier or Bonus Entitlement for a new purchase:
Eligible Veterans have a primary entitlement of $36,000 and an additional, secondary entitlement of $68,250
The following example assumes a $424,100 county limit and $36,000 entitlement used already on existing VA loan. This shows the buyer could finance with no money down between $144,000 and $280,100. This assumes that the borrower also qualifies based on credit, income, and assets.
Calculations for a sample access to a second VA loan:
$424,100 x 25% = $106,025 Maximum Guaranty
$106,025 – $36,000 = $70,025 Entitlement Available
$70,025 x 4 = $280,100 Maximum Loan Amount with No Down Payment
So this sample Veteran may borrow up to $280,100 to purchase a new home. But the new home must be at least $144,000 to access the 2nd tier as well. Now, this buyer may purchase a more expensive house but once over $280,100, a VA loan down payment would be required. But the down payment on VA is still often a lower percentage than other loans. It is highly suggested to just contact us for this calculation rather than figure it on your own.
Coming Up with a VA Loan Down Payment Using Bonus Entitlement
So if you are using a VA bonus or 2nd tier entitlement which requires a down payment, then it is very possible with this little known trick. Often when a down payment is required on 2nd VA loan, it isn’t too much of a down payment. As mentioned, it does depend on the purchase price and the entitlement used. But, the good thing is it is possible to get up to 4% of the sales price in down payment for the buyer! Therefore, it is possible to have two VA loans at once, have the seller pay all customary closing costs, and even have up to 4% of the price in down payment included in the purchase!
Hopefully this article was helpful and maybe shared something you may not have known. Contact us for your VA purchase or refinance. Our knowledge will get you the service and loan that you deserve!
Author: Russell Smith
Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.