Even though you may have used your eligibility credentials for a VA loan to purchase a first home, the VA will let you use it again to buy a second one. However, qualifying for a second mortgage may not be as easy as it was the first time around. Here are two reasons the VA may deny your loan and what you can do to fix the problem.
You Still Owe Money on Your First Home
It's not unusual for people to purchase second homes even though they're still paying on their current houses. Unfortunately, owing money on your first mortgage can tank your ability to get a second home through VA financing in a couple of ways.
First, VA will only guarantee one loan at a time per eligibility credential. This is likely because the actual VA guarantee amount is typically 25 percent of the loan up to a maximum of $113,275, even though lenders will approve loans for up to four times that amount. If you've paid the mortgage on your first home enough that it dips below the guarantee amount, you can use the unused portion to qualify for another loan. For instance, if the balance on your first home is $50,000, you can use the leftover $63,275 to qualify for a $253,100 mortgage on your second home. Otherwise, if your loan balance is more than the guaranteed amount, you'll have to wait to pay off the loan or try to get qualified a different way.
The second reason owing money on your first mortgage can hurt your chances of getting another one is that your income and credit may not be sufficient to cover both. To determine how risky it will be to loan money to you, the bank will total up your debts and compare it to your income to see whether you make enough to cover all your bills. If your liabilities exceed 41 percent of your income, the bank may deny your application. In this case, you'll need to reduce your debt-to-income percentage to the required level before applying.
You Won't Be Living in the Home
The VA requires homeowners to actually live in the homes they purchase. Thus, the VA typically won't approve loans for second homes where the owners will only use the property a few days or weeks out of the year. To qualify, the homeowner must live in the second house for a minimum of six months and one day out of the year. Failure to comply with this aspect of the loan can result in a denial.
Thus, you should only apply for a VA loan if you plan on using the home for at least half the year. Alternatively, spouses can also fill in the housing requirement, so it may be worth the effort to speak to a loan broker about how best to make this option work for you.
For more information about VA loans, contact a local bank or mortgage company.