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VA Second-Tier Entitlement
Can I Have 2 VA Loans At One Time? YES!
In some cases, you can have two. Veterans and active-duty military with a VA Home Loan might be surprised to know that they can qualify to purchase a home with a second VA Loan based on what’s called their Second-Tier Entitlement.
While there’s plenty to know about the VA Loan for those just looking to use it the first time, there’s a lot of information about using two VA Loans simultaneously.
A lot of vets think they can only use their VA Loan once and they’re trying to save their VA Loan benefit when they don’t have to. The VA does allow for having two VA Loans at the same time, as long as the max entitlement is not exceeded. Also, you must qualify for the second loan and in some cases, may need two years of rental history on the first home to offset the mortgage payment when trying to get qualified income-wise to purchase a second home.
First, let me explain the difference between entitlement and maximum loan amount.
Each borrower using a VA Loan has a $36,000 entitlement that the VA guarantees to the lender in the unfortunate event that a borrower would default on the loan. The VA’s formula dictates whether or not all that entitlement is used 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, then the Veteran or active duty member can still use their second-tier entitlement, but there will be a standard minimum and maximum loan limits on what the borrower can use to buy that second house. Where does the $36,000 come from? This is 25% of 144,000, the “old” maximum loan amount for VA loans.
The VA now has County maximum loan limits as high as 768,750 in the DC Metro Area. With that loan amount, your 25% guarantee is 192,187.50 in entitlement.
Second-Tier entitlement is nice because, for those people using it, it means they don’t have to sell their (first) property right off the bat when obtaining the second VA Loan. *However, they still have to qualify for the VA Loan. While Second Tier Entitlement is not widely used because of its complexity and the fact that plenty of lenders are not well versed in calculating it, it does not mean that interested borrowers should wave the white flag and look elsewhere for a different home loan.
There are a lot of people that don’t know about it or are misinformed, lenders included. But we know about second-tier entitlement and how to calculate it and are comfortable working with it.
If you’re in a VA Loan already and thinking about using your VA Loan again, call us today to learn more about your second-tier entitlement. An Example of calculating second-tier entitlement:
The veteran has used $104,250 of entitlement on a prior loan, which may not be restored because the loan is still active and is now a rental due to orders to transfer. The Veteran is now purchasing a home for $350,000 where the county loan limit is $768,750.
$768,750 (County Loan Limit) X 25% (your VA guaranty) = $192,187.50 Maximum Guaranty
$192,187.50 – $104,250 (entitlement already used for active VA loan) = $87,937.50 Entitlement Available
$87,937.50 X 4 = $351,750 Maximum Loan Amount with 25% Guaranty – Since the proposed purchased price is less than the max loan amount, no down payment would be required.
If the Veteran would like to purchase a home for 400,000 using the same numbers above, they would be required to bring $12,062.50 as a down payment to meet the 25% guaranty.
400,000 x 25% = 100,000 needed entitlement/guaranty – 87,937.50 available = 12,062.50 difference needed by Veteran to meet lender requirement.
If you would like to discuss your options for second-tier availability to you, please do not hesitate to contact me!