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Second-tier Entitlement and VA Loans

Veterans and active duty military with a VA Home Loan might be surprised to know that they can qualify to purchase a home with a second VA Loan based on what’s called their Second-Tier Entitlement.

While there’s plenty to know about the VA Loan for those just looking to use it the first time, there’s a dearth of information about using two VA Loans simultaneously.

“A lot of vets think they can only use their VA Loan once,” said Dan Davis, a VA Loan Specialist with VAMortgageCenter.Com. “They’re trying to save their VA Loan benefit when they don’t have to be.”

The VA does allow for having two VA Loans at the same time, however the borrower must qualify for the second loan and in some cases, may need two years of rental history on the first home to offset the mortgage payment when trying to get qualified income-wise to purchase a second home.

Each borrower using a VA Loan has a $36,000 entitlement that the VA guarantees to the lender in the unfortunate event that a borrower would default on the loan. The VA’s formula dictates whether or not all that entitlement is used with the initial loan, and thus, additional entitlement can be available. And even if the entitlement is $0 after the purchase of the first house, then the Veteran or active duty member can still use their second-tier entitlement, but there will be a standard minimum and maximum loan limits on what the borrower can use to buy that second house.

Often that minimum is $144,000 as set by the VA, and the maximum loan amount is around $260,000 for second-tier entitlement, however the formula is applied when calculating the second-tier entitlement, and that formula can result in a higher maximum loan amount.

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“Second-Tier entitlement is nice though because for those people using it, it means they don’t have to sell their (first) property right off the bat,” Davis said of obtaining the second VA Loan. “But you still have to qualify for the VA Loan.”

While Second Tier Entitlement is not widely used because of its complexity and the fact that plenty of lenders are not well versed in calculating it, does not mean that interested borrowers should wave the white flag and look elsewhere for a different home loan.

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“There are a lot of people that don’t know about it or are misinformed, lenders included,” Davis said. “But there are those out there, like VAMC, which do know about second-tier entitlement and how to calculate it, and are comfortable working with it.”

If you’re in a VA Loan already and thinking about using your VA Loan again, Davis recommends calling the VA Loan Specialists at VAMortgageCenter.Com to learn more about your second-tier entitlement.

An Example of calculating second-tier entitlement:

$417,000 (is the loan limit) X 25% = $104,250 - $36,000 (base entitlement) = $68,250 + $21,853 (or the veterans remaining entitlement on COE) = $91,130 X 4 = $360,412 (this is the max amount the veteran can use in this example)

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