The VA loan program is designed to help veterans and active service members purchase homes with no down payments and despite less-than-ideal credit scores and existing debt loads. Federal laws states veterans must plan to live in the home as their primary residence. However, there are ways to meet this occupancy requirement that let eligible veterans use VA loans buy second homes, including vacation homes and investment properties, even if they’ve previously used their loan benefit. Consider working with a financial advisor as you make decisions about mortgages for buying a second residence.
VA Loan Basics
Under the VA loan program, the Veterans Administration doesn’t actually make home loans. Instead, it guarantees repayment of 25% of the value of mortgages that banks and other non-government lenders make under the program.
This government backing enables veterans to buy homes with, in most cases, no money down. Lenders also loosen credit score and debt-to-income benchmarks, and VA loans don’t require mortgage insurance or have prepayment penalties. Plus, VA limits closing costs veterans must pay.
There are also significant limitations. One is that only veterans who can produce a valid certificate of eligibility proving their service can qualify for these loans. VA mortgages are also restricted to homes in good repair. The extra loan funding fees VA charges and frequent closing delays can be potentially significant negatives.
Using VA Benefits to Buy a Second Home
Federal law governing VA loans includes specific occupancy requirements on VA borrowers. That is what makes it tricky to purchase a second home with a VA loan. The law states that veterans must certify that they intend to personally occupy the property as their home. While that seems to rule out a purchase of second home, the VA allows for exceptions that may make it possible to use a VA loan for that purpose.
For example, as part of the VA loan application, a borrower must certify that he or she plans to move into the home being purchased within 60 days after the loan closes. However, it’s possible to get an extension beyond the usual 60-day limit for moving in. One example is when a home will get repairs or improvements that keep the veteran from occupying the property until work is completed. After moving within that 60-day period, the previous home can become the second home and the new home becomes the primary residence, meeting the occupancy requirement.
Since service members may move often, there are no hard and fast standards for how long after moving into the newly purchased home the veteran must live there as a primary residence. So a buyer might be able to live in the new home for a fairly short period, then move back into the first home.
VA Loan Requirements That Are Flexible
The veteran does not actually have to be there every day. However, the newly purchased home must be reasonably close to the veteran’s workplace. That can make it hard to get a VA loan for a second home in a vacation destination. A veteran whose work requires long absences from home may get around this by showing a history of continuously living in the community and also showing that there are no plans for a primary home elsewhere. The newly purchased house can’t be occupied only on a seasonal basis though.
Twelve months is considered the longest allowable delay, no matter what. But if a veteran plans to retire within 12 months, that can also justify an extension. Similarly, a veteran who plans to retire to a vacation destination can get around the workplace proximity rule.
Using a VA Loan for Investments
The same approaches can be used to purchase a second home using a VA loan and then use the first home as an investment property. The buyer has to occupy the second home, meeting the various legal requirements, but the first home can then be rented out for investment income.
Another way to use VA loan benefits to buy investment property is to purchase a multi-unit residential property. The buyer can live in one unit, satisfying the occupancy requirement, and rent the other units to tenants.
There is room for some interpretation of how these rules apply to a veteran’s plans and the requirements for occupancy. To be sure a VA loan can be used in a particular circumstance, it’s a good idea to check with the regional VA office and discuss the situation.
Bottom Line
Although VA loans are intended to provide military service veterans with attractive and affordable methods to purchase primary residences, it’s possible to use the loans to buy a second residence, a vacation home and even investment properties. The key is to satisfy the occupancy requirements the VA imposes on buyers who use its loan programs.
Tips on Mortgages
- Sitting down with a financial advisor before tapping VA benefits to buy a second home or investment property can ensure that the transaction is feasible and fits your financial objectives. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Use our no-cost mortgage calculator to estimate your monthly mortgage payment with taxes, fees and insurance.
- SmartAsset’s mortgage comparison tool let’s you quickly compare mortgage rates from top lenders and find the one that best suits your needs.
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