How many times can you use a VA loan?
How many times can you use your VA loan benefit?
You can use your VA home loan benefit as many times as you want. But, with some rare exceptions, you can only have one VA mortgage at a time.
To reuse your VA home loan benefit, you just need to remain eligible and reinstate your entitlement. But there are some rules with implications for the repeated use of your entitlement. So read on to discover the details.
How VA entitlement works
VA entitlement is fairly straightforward. A Certificate of Eligibility (COE) will provide information about your VA entitlement. A VA lender can help you confirm your VA loan eligibility and request your COE.
Understanding your Certificate of Eligibility (COE)
The Department of Veterans Affairs guarantees 25% of your loan value. That means, if you default on your mortgage, the lender can recoup a quarter of the loan amount from the VA — and this is what enables lenders to offer zero down payment loans with great interest rates and no mortgage insurance.
Before VA loan limits were abolished, most VA loans were capped at $144,000. A quarter of $144,000 is $36,000, which is why most COEs indicate a basic entitlement of $36,000. But VA loan limits no longer exist and if you are able to qualify, your lender can issue you a much larger loan amount.
So that $36,000 is more like a starting point.
What if my COE says my entitlement is $0?
If you have an existing VA loan worth more than $144,000, you’ll have used up all your entitlement. Your new COE will show your entitlement as $0. Don’t worry. You can reinstate your full entitlement by selling your home and using the proceeds to “redeem” your mortgage (pay it down in full).
This is common. And lenders are used to it.
You don’t have to wait until you’ve redeemed your mortgage before you apply for a new one, no matter what your COE says. You can usually close on your purchase on the same day you close on your sale. So moving with a VA loan is as straightforward as doing so with any other mortgage.
Bonus entitlement & tier 2 entitlement
The VA uses terms like “bonus entitlement” and “tier 2 entitlement” when working with lenders. These describe guarantees that the VA provides to the lender, above and beyond the basic $36,000.
These are generally internal terms and you’re unlikely to need to know them. The VA website says, “We use these terms when we communicate with lenders about VA-backed loans over $144,000. You won’t need to use these terms when applying for a loan.”
How to restore VA loan entitlement
Here are a few ways to restore your VA entitlement so that you can reuse your VA home loan benefit.
Restore your VA entitlement by refinancing
One option is to refinance the mortgage on your existing home to a non-VA mortgage like a conventional loan or one backed by the FHA or USDA. You could then use your existing home as an investment property and buy a different one using your restored VA entitlement.
Remember that if you use a VA loan to purchase a home, you must live in it as your primary residence (with a few rare exceptions).
Restore your VA entitlement by paying off your mortgage
Another option for restoring your entitlement is to pay off your VA loan balance. This almost instantly puts back whatever entitlement you originally had, usually $36,000.
With a 30-year mortgage, you will pay off your mortgage balance over three decades. Or, if you happen to come into a windfall (perhaps an inheritance), you could pay down your loan early without penalty. All of these options will restore your VA entitlement and allow you to buy a new home with a VA loan (just remember you must live in it).
How to use remaining VA entitlement for additional loans
The VA loan program is intended to help military service members buy primary residences, so it’s very unusual that you’ll be able to take out two VA loans for two homes at once.
But there are some limited circumstances under which you might be allowed to do this. The main one is when someone is posted through a permanent change of station (PCS). If that happens to you, you might be able to buy a home near the base to which you’re posted and keep your original one, both with VA loans.
If you have enough remaining entitlement leftover after your first VA loan, then you may be able to get a second VA loan for the second home purchase.
Suppose you bought a modest home 10 years ago for $72,000. That’s half of the $144,000 that the $36,000 guarantee on your COE entitles you to. And you could use the other half now.
Of course, it’s harder today — though certainly not impossible — to find decent homes in that price bracket. But you can bridge the difference between the home price and your maximum VA loan using savings.
Does the VA funding fee increase with subsequent use?
The first time you use your VA entitlement, you’ll typically pay a one-time funding fee of 2.3% of the value of your loan, assuming you have a zero or very small down payment. So if you borrow $100,000, you have to pay $2,300 on closing. Alternatively, you can often add your funding fee to your loan amount and pay it down over the lifetime of your mortgage.
Though that might seem like a lot of money, it’s substantially less than what you would likely pay in private mortgage insurance for other low-down-payment loan types.
Some service members are exempt from the funding fee, including veterans with certain service-related disabilities and surviving spouses.
How much will the VA funding fee increase with subsequent use?
The funding fee for subsequent uses of your VA loan benefit will depend on the size of your down payment.
If you make a down payment of less than 5% of the purchase price, your funding fee will be 3.6%, a little higher than it was for your first purchase.
If you can make a down payment of more than 5%, then your funding fee won’t go up at all with subsequent use. If you can put down between 5% and 9.99%, your funding fee rate drops to 1.65%. And if you can manage 10% or more, that fee rate drops to 1.4%.
Of course, assuming you’ve been in your home for a few years, it’s likely that you’ll have built up “equity” in it. That’s the difference between your home’s current market value and the balance you still owe on your mortgage. Your monthly payments will gradually reduce your balance. And, if you live somewhere with rising property prices, home price inflation will push up the value. So most homeowners have few problems finding a down payment of 5% or 10% after a few years.
One more thing. If you want to refinance to a lower mortgage rate and a lower monthly payment, and you don’t want to take cash out, you’re in line for a VA streamline refinance (an IRRRL). With these, your funding fee is only 0.5%.
Benefits of a VA loan
The VA loan program offers a multitude of benefits, including:
- No down payment required. Though you’ll get a lower funding fee if you put down 5% or 10% or more.
- Low mortgage rates. VA mortgage rates are usually the lowest rates available.
- No mortgage insurance. This can save you thousands of dollars over the life of your loan term.
- Easy to get approved. Lower credit score and higher debt-to-income thresholds than many loans.
- Good range of options. Pick from 15- or 30-year terms and fixed- or adjustable-rate mortgages.
- Comparison shopping opportunity. Find the best deal for you by comparing quotes from multiple lenders.
- VA loans are “assumable.” Another qualifying service member or veteran can take over your loan (and rate) as-is when buying the home.
- Zero prepayment penalties. You can pay down some or all of your loan early with no financial penalties.
Whether you’re on your first, second, or 16th home purchase, a VA home loan is highly likely to be the very best mortgage you can find — assuming you’re eligible.