Keys down the street from their first grandchild

This closing meant a lot to me. My clients are veterans, buying for the second time, and when we first talked they believed what most people believe: that to buy the next house, you sell the one you are in. They also had a reason to move that had nothing to do with square footage. Their daughter lives down the street from this house, and she is expecting their first grandchild.

What they did not know is that a VA home loan benefit does not get used up by one purchase. They could keep their current home, move out and rent it, and still buy this one with their VA benefits, using what is called bonus entitlement. Because they had enough entitlement left, the down payment on this home was small.

This closing, in brief

Who

A veteran couple, buying for the second time

Where

Down the street from their daughter, Inland Empire

Loan

VA purchase using remaining (bonus) entitlement

First home

Kept, and converted to a rental

Down payment

A small share of the price

Why it mattered

Their first grandchild is on the way

What "entitlement" means

The VA does not lend the money. It guarantees part of the loan, which is why VA loans are known for low up-front costs and no monthly mortgage insurance. That guarantee is your entitlement. When you buy a home with a VA loan, part of it is tied up in that loan. The part that is left is your remaining, or bonus, entitlement, and it can be used to buy another home while you still own the first one.

How much you have left depends on the size of your current VA loan and the loan limit for the county you are buying in. Those two things decide whether you need a down payment on the new home, and how much. Here, it was far smaller than they expected.

You must live in the new home. You do not have to sell the old one.

The first home can become a rental, and in many cases the rent can even help you qualify for the new loan. We walk through the occupancy rules, the county loan limit and the entitlement math before anyone falls in love with a house, so the answer is known on day one and not on day twenty.

Three numbers I ask for on day one

I worked my way up to underwriter, so I read a file the way an underwriter will. On a second-time VA purchase, three things early tell us what the down payment will be, if there is one. Our team prepares each step, and I review the files that may be a bit more difficult, so there are no surprises.

1. 1Certificate of EligibilityShows the entitlement already in use on the first home, and what remains.
2. 2The first home's numbersIts current mortgage, and what it will rent for once you move.
3. 3The county loan limitSets how far the remaining entitlement stretches on the new home.

Questions veterans ask us