The Housing Scene

VA Loans: Again and Again

All military personnel are told about their Department of Veterans Affairs (VA) housing benefits when they muster out of the service. But far fewer seem to be aware of their second-tier entitlements: the fact that they can use their no-down-payment mortgage benefit more than once.

There are rules, of course. Aren’t there always? But if you are a qualifying veteran, it’s possible to buy a second house with a VA loan while you still have your first VA-mortgaged house. You might even be able to use your second-tier benefits to buy another house after you’ve lost your first one to foreclosure or a short sale.

It shouldn’t come as a surprise that most veterans are unaware of what their second-tier benefits are. A recent check with several lenders at a trade show found that most lenders -- even those who claim a specialty in VA lending -- don’t know much about them, either.

But there are at least a few people out there knowledgeable on the subject. One is Joe Murin, a former president of Ginnie Mae under presidents Bush and Obama. Ginnie Mae is the little-known government-sponsored enterprise that buys government-backed mortgages from primary lenders, then packages them into securities.

Another expert is John Burke, a loan officer at Great Plains National Bank in Austin, Texas. Burke’s website (VAloansdoneright.com) explains VA loans in great detail.

Murin, now vice chairman at Chrysalis Holdings, which includes companies in the analytics and mortgage sectors, says “most people don’t even know that second-tier entitlements exist. A lot of veterans don’t even know they have first-tier benefits.”

With that in mind, let’s start with the basics: The VA doesn’t make loans itself. Rather, it guarantees loans made by local lenders to service members, veterans and eligible surviving spouses who want to buy a house. (You can find out if you’re eligible at benefits.va.gov/homeloans/purchaseco_eligibility.asp.)

There are limits, though. The most a veteran can borrow anywhere in the country without any money out of his or her own pocket is $424,100. But there are some 50 counties, largely on the coasts, where the maximum is considerably higher. For every $4 borrowed above the maximum, however, the vet must put up $1.

The VA’s guarantee is limited to the lesser of 25 percent of the county loan limit or 25 percent of the loan amount. So, if the borrower has his full entitlement and is buying a $300,000 house in a county where the loan limit is $424,100, the VA will guarantee $75,000 and the lender will not require a down payment.

Later, if he pays off the old loan and buys another house with a VA loan, the full entitlement will be restored. If he then buys, say, a $400,000 house in a county with the standard limit, the VA will guarantee $100,000 of the loan amount and, again, a down payment should not be necessary.

Second-tier entitlements normally come into play when a service member transfers duty stations: If a soldier has a VA loan on a house at her current post and wants to buy a house at her new one, she can use her remaining entitlement on the new house.

Typically in these cases, the new post is temporary, or the service member intends to keep the old place as a rental. Either way, the borrower’s debt-to-income ratio will be scrutinized to make sure she can handle the payments on two houses. And if the old house is rented instead of sold, the borrower will be required to produce a lease that spells out the rental terms and amounts.

Since the maximum guarantee entitlement in counties with a ceiling of $424,100 is one-quarter of that amount ($106,025), the veteran borrower in the above example (who used $75,000 of his entitlement on his first house) would still have $31,025 available.

“Just because he’s tied up with a prior VA mortgage doesn’t mean he can’t have another one,” says Burke.

Of course, veterans in this scenario can borrow more than the remaining entitlement amount; they’ll just have to pony up some of their own money. And if the county limit where they’re buying their next house is higher -- say, $815,000 -- the maximum guarantee goes up as well ($203,750), along with the remainder available.

There are a couple of caveats: Borrowers must have been current on payments for the previous 12 months, and must meet the lender’s debt-to-income ratios.

Now suppose a vet bought a house with a no-money-down VA loan, using part of his entitlement. If he lost that house in a distress sale, that portion of his entitlement would be gone. But he would still have the remainder, meaning he would be eligible -- if he passed the necessary waiting period and re-established a clean credit record -- for another partial VA loan with nothing down.

VA borrowers also can use their second-tier entitlements to buy larger houses for their expanding families and to bring their elderly parents or grandparents into their homes.

For more on this admittedly complicated topic, find a lender that is an expert in VA financing or contact your local VA Regional Loan Center.

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