A tier two VA loan is having two VA loans at one time. It is important to understand that the VA loan allows veterans to have more than one loan at a time.
When an entitled recipient of the VA Loan benefits has defaulted or already has an existing VA loan they are in many cases eligible for a second loan. Depending on circumstances a buyer may need to purchase another home and contrary to popular belief many will qualify for another loan using their VA loan once again. There are a few differences in initial and secondary uses and we will cover those for you to ensure that you are aware of what changes. The idea of carrying two loans can be scary but the great news about this is ADPI has many resources to help you turn that first home into an investment. A cash-flowing property can be such an amazing benefit when you are looking to get a real estate portfolio built!
Purchasing a second home or second time with a VA loan can be a great way for veterans to take advantage of their VA benefits and invest in real estate. With a VA loan, veterans don’t have to worry about a down payment and have access to competitive interest rates. However, there are several factors you should consider before taking out this type of loan. Beyond in some cases having two months of mortgage payments set aside in case of an emergency, you will also need to ensure that the total monthly cost of both mortgages added together is not more than 41% of your gross income. You’ll also want to take into consideration any additional costs such as regular maintenance, taxes and insurance associated with owning two homes. It’s important to do your research and speak with a lender before applying for another VA loan so you can be sure you’re making the right financial decision for your future!
When Are Multiple VA Mortgage Loans Needed
Multiple VA mortgage loans are needed when a member needs to relocate due to life changing circumstances. Buying a home can be a huge financial undertaking but taking on a second loan can be even more of a risk. You must continue to think about it during your military career and after you are out of the military.
Getting one item out of the way let’s talk about buying after you have had a previous VA loan go into default. The second time using a VA loan, which is allowed, you will need to make it through the lender’s vetting process to ensure that like everyone else you still qualify financially for a mortgage. The secondary use will fall under the same changes any secondary use for a VA loan will.
So what happens if you have a house and you need or want to move due to the military or your home doesn’t meet the quality of life standards you have any longer? First, there are a couple of items to consider. After first time use the VA funding fee will not be the same when you execute the loan with the famous VA “no money down loan”. The funding fee can be reduced if a borrower puts money down. In staying with the no money down concept if you go to purchase a home you will have a funding fee added to the total of your loan. Remember, if you have a VA disability rating of 10% or more, you no longer pay any VA Funding fee and in certain circumstances based on the date of the loan and your VA disability submission, you may receive a VA Funding Fee refund.
The funding fee is a fee that is put into your loan when you purchase using a VA loan, this is paid to the VA and will not be covered by a lender.
2023 FUNDING FEE CHART (the VA periodically makes changes)
| Down Payment | First time VA loan use | Subsequent VA loan use |
| No down payment | 2.3% | 3.6% |
| 5% or more down | 1.65% | 1.65% |
| 10 % or more down | 1.4% | 1.4% |
What are Basic and Tier 2 VA Entitlements
A second tier VA entitlement is what a qualified, eligible VA loan borrower can potentially have left after a first purchase using a VA loan to buy another property. The basic make up when considering buying with the government backed loan, VA loan specifically, is that there is an entitlement amount which is typically $36,000 and an allowed secondary amount of $91,600 totaling $127,600 for eligibility to be backed but this is not your actual loan amount allowed.
Now that may not seem like a lot in today’s market it is important to capture the fact that the VA loan is attractive to lenders because the VA will back some of the loan not the entire amount.
If you’re looking to take out a Tier Two VA Loan, there are several key factors that lenders will consider when deciding whether or not to approve your loan. Your credit history and score play an important role in the process, as lenders want to ensure that you can be trusted to make timely payments. A strong income and stable employment history is also considered when evaluating your application, as lenders want to ensure that you have the capacity to pay back your loan. Additionally, having a good debt-to-income ratio will also help show that you are financially responsible and capable of handling additional debt. It’s also important to note that lenders may review other factors such as your savings account balance and assets in order to fully assess your ability to repay the loan. With all these factors taken into consideration, it’s important for applicants to understand what lenders are looking for so they can build a convincing case for their application and get approved for their loan!
Qualifications for Second-Tier VA Home Loan
Much like the first use qualifications for a VA loan the borrower must meet criteria. The financial qualifications will be dependent on the lender but there is typically a deeper look into debt to income ratio. This is especially true if you are holding other properties. The rental income that you are going to get can often be considered by lenders and their underwriters. As for the VA loan qualifications overall you will need to see the VA loan eligibility requirements.
VA Loan Eligibility Requirements
To be eligible for the VA loan, the buyer must be one of these statuses:
- Veteran must have met service length requirements
- Currently serving members must meet time in service for a minimum period
- Certain Reservists and National Guard members
- Certain surviving spouses of deceased Veterans
How Many VA Loans Can You Have Over Your Lifetime
In a perfect world you could buy as many homes as you want but the limitations you must consider when purchasing with a VA loan include, amount of eligibility you have left and the amount of the overall loans.
Some people have gotten themselves into a bit of an issue because they also don’t know this key thing about eligibility. The amount of eligibility that will be held against your Certificate of Eligibility (COE) will be what the total of your loan was when you closed and made your first payment. This means that if you bought a 300,000 house ten years ago using a VA loan and you paid off 200,000 thus far, but you have never refinanced you will still have 300,000 held against your full loan amount allowed for a secondary, tier 2 purchase.
How To Calculate VA Entitlement Amounts
When calculating a VA loan entitlement there are two ways to look at the loan. The first being that you can look at the loan with the eligibility criteria and the second is to look at overall loan balance limits. In the examples below we are going to go over a way that you can estimate what the total loan amount you can take out is. Let’s look into this amount without diving too deep into the eligibility numbers as those are different and come with more specific calculations that a lender can do. It is advised to go through a lender to get qualified and let them give you the true numbers for your loan but this will give you a good idea of your benefits.
Basic Entitlement Calculation
Important to understand that many rules have changed in the past couple of years. Limitations on loans are typically conditions of the lender but I will go over a couple of key points to help you understand a basic calculation you can do to see what you can currently qualify for if you already have a VA loan. It must be stressed that you should most definitely ensure that you run all of your projected numbers and eligibility by your lender.
The basic understanding of loan entitlement when it comes to the VA loan is that in most areas the amount of a VA loan is unlimited with the first use. The 2023 Fannie Mae and Freddie Mac Conforming Loan Limit amount of $726,200.00..
(be advised these are for estimation purposes only)
| 1st time use of VA loan | No limitations |
| 2nd time use of VA loan | Calculation can be done by lender to ensure you stay below the cap of $726,200.00 |
2nd Tier VA Entitlement Calculation
2nd time use of VA loan is best to have calculation completed by lender to ensure you stay below the Single Family Conforming Loan Limit cap of $726,200.00 (Conforming Loan Limit may be higher in certain zip codes)The second time you execute a VA loan is when it no longer is considered “unlimited”. To determine your remaining eligible entitlement, you add the total amount of the loans when purchased/re-financed, subtract from the Conforming Loan Limit for the zip code of the property being purchased and that is the amount the VA will guarantee. If your entitlement is short, you have an “Entitlement Gap”. In order to purchase the home when short entitlement, the borrower must put down 25% of the “Gap Amount” as a down payment.
Remaining Entitlement Calculation
The example we will use for the average county limit of $726,200.
The first purchase was a loan of $300,000.
$726,200- $300,000= $426,200
This leaves you approximately $426,200 left for your future loans if you are holding the 1st house you bought and making it an investment property.
Second VA loan Minimum Amount
Basic entitlement will have a minimum amount needing to be used and this will be determined by the lender. Minimum amounts for a second loan can get complicated and you should consult a lender to ensure you maximize your remaining entitlement. When utilizing your full entitlement you will need to ensure that you know what is left of your VA loan eligibility.
Using Second Tier VA Loan Entitlement Following Foreclosure or Bankruptcy
Many veterans are faced with the daunting task of trying to rebuild their finances after a foreclosure or bankruptcy. Fortunately, they can still rely on the VA loan program to purchase a home again and re-establish their credit history. If you have previously defaulted on a VA loan and are now ready to purchase another home using your VA benefits, you will need to be aware of some additional requirements that may apply. First, you must wait in most cases two years from the date of your foreclosure or bankruptcy discharge before you can apply for another VA home loan.
Additionally, any existing late payments or other negative items in your credit history will need to be addressed and resolved before being eligible for a new loan. This is especially important since lenders may require an improved credit score in order to approve financing. You will need documentation proving that your financial situation has improved since the time of the default and that you have been responsible with your finances.
Lastly, you should allow extra time for processing when you are applying for your new VA loan after a foreclosure or bankruptcy as there may be extra documentation requested from the lender. It is not impossible to overcome these real life situations but be prepared to answer more questions and provide more documentation overall.
Putting Money Down For New Property If You Are Short
In a basic breakdown you will get a VA loan if your entitlement is short of your total needed entitlement to buy another home with the VA home loans programs works on a calculation from the lender which uses entitlement left on the certificate of eligibility (COE), what area you originally purchased in and what the current area of the property you are trying to finance is.
This is absolutely a moving target and the math should be done by your lender to ensure that you qualify for the zero down loan. There are some other items like a down payment that may be required if your VA loan eligibility is not enough left to cover the price point and location you are looking at. When it comes to having a previous foreclosure or short sale you will need to talk to your lender about what entitlement is still being withheld. It is extremely important to understand as soon as your contract is in place what you will need to to bring to the closing table if you are short on your eligibility to cover the entire loan amount being eligible with no down payment.
You will need to make sure that you can cover the cost and if not you will need to quickly work with the lender to work out a plan or back out of the offer and get your earnest money back. This should be double checked during a negotiated inspection period to ensure you do not lose money.
How Many Home Loans Can You Have At the same Time
Borrowers can use as many home loans as they would like, and can qualify for. With many different types of loans and loan terms borrowers can navigate through the lender channels and obtain several different types of loans. There are limitations on how many conventionally financed properties one can own. Ten is the magic number for Federal National Mortgage Association (FNMA), or Fannie Mae. Depending on your lender you can attempt to get more loans. Many times you will have challenges getting more due to the amount of risk that is viewed by the lending team but always have them run the numbers to check what you and your financial situation can hold.
When it comes to how many VA loans you can acquire you can typically hold multiple loans depending on a couple of factors. Your entitlement can be used up to the maximum amount and if there is left over the amount will need to be paid or financed as stated above. If you purchase with two eligible VA loan borrowers there the entitlement can be pieced together to allow entitlement to be used and no money out of pocket is required if there is enough to cover the entire loan amount. It’s important if there are two borrowers with entitlements being used they will both need to reside in the property as a primary home.
ADPI Pro Tips
- When putting in an offer knowing that you are using your VA loan entitlement, using second-tier entitlement for a second VA loan or third VA loan , have your lender run price sheets on scenarios with and without a down payment if you can afford it and tell you how much you will save in a reduced funding fee and interest over the life of the loan. A good investor always looks at all options to ensure they are maximizing their overall return!
