Subsequent Use of a VA Loan

Can You Use a VA Loan Twice?


  One of the great things about the VA loan benefit is that you can use it multiple times to buy homes. There is no limit to the amount of VA home loans that veterans can use with the VA loan program; it is a life-long benefit. To secure an additional loan, your lender will look into your VA loan entitlement. The VA funding fee will go up slightly for you from what it was when you bought your first home.

What is the VA Funding Fee?


The VA funding fee goes to the Department of Veterans Affairs to help them keep the cover any losses on the loan and to keep their loan guarantee going. This fee can be rolled into your mortgage, but it will slightly increase your monthly mortgage payments. You can ask your seller to pay all or part of the funding fee on your behalf, and some sellers are willing to do this, but it is most commonly rolled into the mortgage. You are exempt from paying the funding fee if:
  • You are receiving VA disability compensation or are entitled to it.
  • You are in active service and have been awarded a Purple Heart.
  • You are the spouse of a veteran who died in service or from a disability connected to their service.
 

How Much is the Fee?


The fee ranges from 0.5 percent to 2.3 percent of the total loan amount for a first-time borrower, though the amount can be reduced if they choose to make a down payment. For a subsequent home purchase, the fee is usually 3.3 percent, but it can also be affected by a down payment.

What is Entitlement?


All veterans and active service members who meet the VA’s loan eligibility requirements have entitlement. This is the amount of money the VA will pay the lender if the borrower defaults on the loan.
Usually, the entitlement is approximately $36,000 the first time and a secondary entitlement of $68,250 for if the veteran buys a home that is over $144,00. When you use your VA loan, you are using that entitlement.

Can Entitlement be Restored?


If you use your entitlement, it can be restored when the loan is fully repaid, by submitting an application to the VA. To have your full entitlement restored, you have to sell the home for the original loan and pay off the mortgage. So long as you keep selling and paying off your previous VA loan, you can have your entitlement restored as many times as you want or need to. However, if the mortgage is paid off, you can use a one-time restoration benefit that will let you keep it as a vacation home or rental property.

Can I Have Two VA Loans at Once?


You can have two VA loans at the same time, usually, this is done because an active service member has a permanent change of station but wants to keep the old house. If you have enough entitlement left, you can then buy a new home at your new station. Another use of this is for a veteran who lost their home to a VA loan foreclosure, they may be able to later use their entitlement to buy a new home.

The Closing Costs for a VA Loan

When buying a home with the VA loan, there is no down payment, making it an excellent option for veterans. However, one financial obstacle that veterans will still need to face is closing costs. Closing costs are paid at closing for the lender’s fees, insurance, taxes, title transfers, and other fees needed to complete the purchase.

How Much Are Closing Costs?


While the exact amount can vary in different parts of the country, they usually average between three and five percent on a less expensive home. There are online loan estimate forms that can help you determine an approximation of what your total closing costs will be. These costs are paid for by you out of pocket, but in some cases, the seller will pay up to four percent of the closing costs for the buyer. This is discussed in negotiations with the seller, and they can help pay for any of the fees, up to the four percent mark. There are also programs that can help you pay for closing costs if you need financial assistance.

What Fees Are Included in Closing Costs?


While most of the closing costs you will pay are the same for a VA loan and another type of loan, the VA does have some differences. There are some fees that the VA prohibits, including mortgage broker commissions, prepayment penalties, attorney fees, and settlement charges. The only attorney fees that the VA will allow are for title work, no other fees will be included in closing costs.   While the fees included in your closing costs can vary, depending on your location, these are some that can give you a general idea of what you can expect.

Appraisal


The cost of an appraisal can vary, but it is usually around $500. The VA sets the cost of the appraisal, and it does need to be paid upfront. The appraisal is to determine the full value of the house, to ensure you are not overpaying, and to make sure the home meets the VA’s minimum standards.

Flood Certification


The lender will use this to determine if the home is in a flood zone; this is usually around $20. If it is, you will need to purchase flood insurance too. Flood insurance is an ongoing insurance policy that is required by your lender and is not usually covered by a standard homeowner’s insurance policy. The first year’s premium is due at closing, and depending on how much it is, you may end up having a lot more money added to your closing costs.

Homeowners Association (HOA) Fees


Often HOAs will charge you annual dues, which are not necessarily included in your closing fees, but you may want to factor the amount due into what you will need for closing.

Homeowner’s Insurance


The full year’s premium for homeowner’s insurance is due at closing. The standard policy does not protect against flooding, and it may not cover damage from natural disasters like earthquakes. Usually, these policies only cover things like trees falling on homes, fires, and other things like that.

Loan Origination Fee


This is the lender’s compensation for the loan, which the VA limits to one percent of the total loan amount. The lender might not include fees for underwriting or processing the loan in this fee. The lender can itemize the fees up to one percent or they can charge a flat rate of one percent. If they choose the flat rate option, they are not allowed to charge you additional processing fees. This is unique to the VA loans.

Record Fee


Your local area sets this fee, and it is to make the sale public record. It can be as little as $20 or up into the hundreds of dollars.

Reserves for Tax and Insurance


This is another fee that varies by the taxes and insurance on the home and the area. This escrow is intended to cover the taxes and insurance premiums when they become due. Your lender can help you establish how much you will need for this.

Survey Fee


A company will come out to the property to determine where the physical property lines are. While this is not usually required, it is recommended so you know exactly where the boundary lines are on your property. This usually costs around $400.

Title Fee


This fee is difficult to average, because it is dependent on the loan amount, purchase price of the home, and your location; ranging from a few hundred dollars to over $1,000. The title report and title insurance protect both the owner and the lender from someone claiming ownership to the house and winning in a lawsuit. If that happens, both the owner and the lender are reimbursed for the loss.

VA Funding Fee


This is a one-time fee the VA charges most borrowers for their loan benefit, and it can be rolled into the mortgage if desired. If a veteran is receiving VA disability, they are exempt from paying the VA funding fee. This fee helps fund future loans for other veterans. The fee can be anywhere between 0.5 percent and 3.3 percent, depending on the loan amount.

Getting a VA Loan When Self-Employed

When buying a home, your employment and your income are a key factor in whether or not you will be approved for a mortgage loan. If you are self-employed, you may face some unique challenges to get a loan. The income from being self-employed is often less stable and consistent than what you would receive working for someone, and this inconsistency can lead to your lender needing to probe more deeply into your financial records.

Who is Considered Self-Employed?

You are considered self-employed if you have sole ownership or at least 25 percent ownership in a business or if you are a freelancer or contract worker whose income is mostly covered under  IRS Form 1099-MISC.

Documentation You Need

If you are self-employed, you will need to provide your lender with a year-to-date profit and loss statement, and something to show your current finances, two years of your individual tax returns and business tax returns, and a list of your partners and/or stockholders. The lender may also want to see your business license and a letter from a CPA stating that you are still in business. This is more in-depth than you would have to provide as an individual because your lender needs to ensure that you have the income necessary to make your mortgage payments. They need two years of income records to ensure that your income is not dropping every year and is either remaining steady or increasing. If you do have a significant drop every year, you will need to provide a written explanation for this drop, but if it is too big, your lender is likely to decline your loan application. The process of proving your income is a little easier if you have recently taken over a family business, if the business has a proven track record of success. In this case, you only need to provide one year of income, though the more you give the lender, the better they can determine how much to give you for your mortgage loan.

Net Income

One area the lenders will focus on is the business losses and expenses. Your net income is what you make after your expenses, so everything you write off on your taxes is not taken into account by lenders. The tax write offs are something that businesses like to utilize on their taxes, but having too many expenses can be problematic when seeking a loan. Writing off expenses gives you less taxable income, which is all that lenders are allowed to count when they process your loan application. For example, you made $80,000 last year, but you wrote off $25,000 of it in expenses. This means that your net income for the last year is only $55,000, which is all the lender will count in your income.

Keep Personal and Business Accounts Separate

Proving your income is difficult enough when you are self-employed, so keeping your personal and business finances separate is important. If you work alone, it can be easier, since you know which expenses are personal and which are business, but if you have a partner it can be a little bit trickier.