Can a VA loan be used for a second home? That depends on what you mean when you say second home. Someone using the term the way that a professional in the real estate industry or the IRS does will hear one answer. However, someone using the phrase in a more generic way might get a different result. If you’re confused, keep reading for an explanation.
Can a VA Loan Be Used for a Second Home?
VA loans are designed to help those who either are serving or have served in the military become homeowners. As the VA explains, these loans come with great perks, including competitive interest rates, favorable terms, no private mortgage insurance, no prepayment penalties, lower closing costs, and the possibility of obtaining 100-percent financing as long as you meet the necessary conditions. That means that you won’t need a down payment. However, there are certain things that borrowers will need to agree to in order to secure a VA loan. In addition to having the basic eligibility for the loan program and the credit and income to qualify for their specific loan, borrowers must agree to live in the home that they’re purchasing with the VA loan. That’s why your interpretation of the phrase second home is so important.
When It’s a Vacation or Investment Property
According to Millionacres, the IRS divides properties into three categories:
- Primary Residence: This is the home where you live most of the time, and it’s the only one that can be purchased with a VA loan.
- Second Home: Per the IRS, this is a property where you live at least part of the year. It’s sometimes called a vacation home. You can use it to raise funds, but making money isn’t its primary function. In fact, you must live in it for 14 days or 10 percent of the days that you rent it out, whichever is greater. In other words, if you rent it out for 200 days each year, you’ll need to live in it for at least 20 days. A VA loan cannot be used to fund the purchase of a property that you intend to use as a second home or vacation home.
- Investment Property: This is a property that you own for the purpose of renting it out to make money. A VA loan cannot be used to fund the purchase of a property that you intend to use as an investment property.
When It’s a New Primary Residence
Can a VA loan be used for a second home? If you’re asking about purchasing a vacation home or investment property, then the answer is no. However, what if you are a homeowner who is preparing for a move who doesn’t want to sell your current home before your go? Could you use a VA loan to purchase a new primary residence for your family in your new location? The answer might be yes. As U.S. News & World Report explains, there are several scenarios where you may be able to use a VA loan to purchase another home:
- Your first home is paid off. If your first home is paid off, then you’ll have your full entitlement available. As long as you are eligible for a VA loan and have the credit and income needed to qualify for the loan that you’re seeking, you should be able to qualify for a VA loan for a new home in your new location.
- Your first home was purchased with a VA loan, and you’re still paying on the loan. If your first home was purchased with a VA loan and is still being paid on, then it will depend on whether the partial entitlement that you have left is enough for the home purchase that you wish to make. If the entitlement is enough, and you have sufficient credit and income to satisfy the lender, then you may be able to secure a second VA loan for a new primary residence when you relocate.
- Your first home was purchased with a non-VA loan. VA loans aren’t just for first-time homebuyers, so using a non-VA loan in the past shouldn’t be an issue. As long as you meet the VA and lender requirements, you should be able to use a VA loan to buy a home in your new town.