Can You Have A Second Mortgage With A VA Loan?
If you want to refinance and take advantage of the current low interest rate environment, but you don’t want to get rid of your home equity line of credit (HELOC) or other secondary financing, you have an option when it comes to Department of Veterans Affairs (VA) home loans.
If you’re a veteran, an active duty service member or a surviving spouse who qualifies for a VA loan, you may be eligible to refinance your primary mortgage without having to jump through hoops to pay off any subordinate financing you have on your house. You may also qualify for an additional or secondary mortgage if your first property was financed using VA loan benefits.
How To Refinance A VA Loan And Keep A Second Mortgage
Refinancing with a VA loan may be a good option if you’re looking to lower your monthly mortgage payments, take advantage of lower interest rates or use some of your home equity to cover various expenses.
The VA Streamline refinance, also called the Interest Rate Reduction Refinance Loan (IRRRL), is an option for homeowners who have an existing VA home loan and are looking to lower their interest rate.
A VA cash-out refinance is also available to veteran homeowners who are interested in taking cash out of their home’s equity. This money could be needed for emergency expenses, home improvements, bills and so on. You may be eligible for other VA loan refinancing options. Talk to your mortgage lender to see which option you qualify for.
Requirements For Keeping A Second Mortgage With A VA Loan
Borrowers can opt to refinance their VA home loan all while keeping a secondary mortgage. The Department of Veterans Affairs has requirements for doing so, including the following:
- The mortgage lender must submit documentation explaining the source, loan amount and repayment terms of the secondary mortgage, while also disclosing the veteran borrower’s and co-borrower’s agreement to these terms.
- The new VA-backed loan becomes the primary mortgage and the second mortgage is subordinated to the VA-backed loan.
- Money from the second mortgage may be used to cover closing costs and other costs, but it can’t be used to cover a down payment required by the VA.
- The interest rate on the second mortgage cannot exceed industry standards for second mortgages, but it can exceed the rate of the VA-backed home loan.
For additional terms and conditions related to secondary borrowing, please visit the VA’s website.
Benefits Of Getting A Second Mortgage With A VA Loan
Quicken Loans VA Product Manager Geno Yoscovits discussed how taking out a second mortgage while refinancing a VA home loan is a real win for clients.
“Clients sometimes have legitimate reasons for wanting to keep secondary financing in place during a refinance,” he said. “They often get favorable terms on a home equity line that they can use for a variety of purposes. VA loans remove the requirement to pay off a secondary lien.”
Other clients benefit as well. Many cities and employers offer assistance in the home buying process as an encouragement to live in a specific place or as an employment perk. Many of these programs are structured to let people take advantage of forgivable loans.
Let’s say you accept a new job that offers $15,000 toward a down payment on the purchase of your new house if you stay with the company for four years. The assistance is given in the form of a forgivable loan that you don’t have to pay back unless you leave the company before the four years is up.
Lower Interest Rates
Now imagine you’re trying to refinance your house to take advantage of lower interest rates. Many loan options require pay off on the forgivable loan that’s a lien on your house before you can refinance your primary loan. On VA loans, you can keep that secondary financing in place.
Home Equity Perks
If you have secondary financing solely for the purpose of utilizing your equity, it’s worth noting that you can do a primary mortgage for up to the total value of your home. This could help you get a lower rate than you otherwise might with a second mortgage or HELOC.
This represents the removal of a significant barrier to refinancing for clients, but it’s just one of several great things about the VA loan program.
The Bottom Line
The VA makes it possible for eligible veterans and service members to refinance their VA loan while maintaining secondary financing. If you’re looking to take out a VA loan, you can get started here. If you still have questions, let us know in the comments below.