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VA loans surge in popularity as applicants seek second homes

Tom Kelly

The rebound of the housing market is being pushed along by lower-than-expected long-term interest rates and the idea that real estate is once again a wise investment.

Military families and veterans seem to be especially active. The U.S. Department of Veterans Affairs announced that the number of loans it guaranteed reached a record high in 2013 to nearly 630,000, up an amazing 372 percent since 2007.

While costs of the VA’s Loan Guaranty Program can be higher than conventional financing, it’s often easier to qualify for the VA’s no-down payment programs.

Applicants must show they can qualify to repay the debt even though VA loans do not require a down payment. About 90 percent of all VA-guaranteed loans for home purchases are made without any money down. The loans also do not require private mortgage insurance. 

Another component adding to the VA loan popularity is the number of seniors and aging baby boomers discovering they can use their eligibility to purchase a second home or retirement residence. While federal regulations require that all loans insured by the Department of Veterans Affairs be used only to acquire a “primary residence,” it is possible to purchase a second home using a VA loan guaranty.

As in many cases involving the use of real estate, the definition of primary residence is the place you live “most of the year.’’ So, if a home is used more than six months of the year, it can be defined as a primary residence.

“A VA loan can most definitely help purchase that next home or retirement home,” said Wayne Bailey, VA loan specialist. “If owners will be spending a greater number of days in what was to be a second residence, then that becomes their principal residence. Hopefully, in their retirement years, people will spend most of their time in what was their vacation home.’’

For example, let’s say you are getting ready to retire (or can work from a home anywhere) and want to buy a home in Arizona to escape the colder months of the year. You wish to dodge the sizzling desert summers also, so the plan is to use the Arizona home October through April. That seven-month period would constitute the largest block of time you live in any one place. Therefore, your new home in Arizona would qualify as your primary residence.

The VA requires that you move into the home in a reasonable amount of time and that you keep it as your primary residence. If those are your intentions at the time you apply for the loan, then there is nothing to keep you from using your VA guaranty to purchase a second home or retirement property.

The perception that a VA loan guarantee can only be used once is incorrect. If your original VA loan was paid off, you are eligible to use the guarantee again. If you purchased a previous home with a VA loan and the buyer assumed your loan, your eligibility can be restored only when the assumer has paid off the loan. The only other alternative would be if the assumer is an eligible veteran who is willing to swap his or her available eligibility for yours.

All VA loans have a funding fee for a borrower’s first VA loan, which is 2 percent of the loan. That 2 percent is reduced to 1.2 if the borrower puts more than a 10 percent down payment.

Some reservists still are unaware that they are eligible for VA programs. After 50 years of offering loans only to vets who served active duty, the VA changed its ways in 1992. Men and women who have completed six years in the Army, Navy, Air Force, Marine Corps, Coast Guard Reserves, the Army National Guard or Air National Guard, are eligible for VA home loans, including no-down payment programs.

The law governing VA loans was not intended to help people enter the business of real estate and purchase lots of investment homes. The law was written to help people afford the home that they are going to occupy. For some veterans, some of those homes are on a golf course in the sun.

Tom Kelly has been a professional journalist for 36 years. He served the Seattle Times for 20 years, many as real estate editor.
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