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VA Loans and Second Mortgages

March 3, 2019

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VA Loans and Second Mortgages

VA loans have a variety of uses and flexible options that make them very attractive for first time homebuyers. But not every VA loan is a traditional home purchase; some buyers have unique needs that require additional consideration. A second mortgage, also known as secondary borrowing, is one option some qualified VA loan applicants may consider.

For this discussion, we’ll follow the Department of Veterans Affairs definition of secondary borrowing, which the VA Lender’s Guide says is:

…the veteran obtaining a second mortgage simultaneously with a VA-guaranteed first mortgage, both secured by the same property.

The VA allows secondary borrowing under specific circumstances. It’s not an “all comers” loan option because of the additional financial burden a second mortgage can put on the home owner, but the VA will allow such loan applications when “the veteran is not placed in a substantially worse position than if the entire amount borrowed had been guaranteed by VA.”

The VA puts additional restrictions on the transaction by requiring documentation about the second loan to include the amount and repayment terms.

Second mortgages in these cases must be subordinate to the VA home loan, in what the VA describes as the “junior lien position relative to the VA loan.” When applying for the second mortgage, the VA rules allow interest rates on the junior lien to be higher than the VA guaranteed loan, but interest rates on the second mortgage may not exceed industry standards.

There are also rules on assumability. The VA does not approve of second mortgages that prevent the borrower from selling the home or having the loan assumed. VA regulations allow the home to be sold or have the loan assumed by any credit-worthy buyer; the rule of thumb here is that the second mortgage shouldn’t restrict the owner from selling any more than VA rules covering the first mortgage.

4 Comments
  1. Luis M Burgos

    I'm a veteran and have a mortgage with HSBC with 9.2% and second. The total amount of both loans is about 285000 and the last appraisal of my house was about 210000. I will retire in about 7 years but I realize that I will not be able to pay my mortgage with my future pension.So, I do not see any obtion in my future but to sell or allow my house into forclosure if I can not sell it so I can survive. My question is Is there any VA program for veterans in my situation to prevent this?. Can you offer me advise if a reverse mortgage is an option for me?. Thank you for any help you can provide me with regard to this matter.

    • Joe Wallace

      There are FHA reverse mortgages for those ages 62 and older who have equity in the home and a small amount of money left to pay on the home loan. The VA offers refinancing loans--Streamline Refinance, which is a VA-to-VA loan with no additional underwriting and must result in a lower payment and/or interest rate. It's definitely a bad idea to allow the home to go into foreclosure. There is an Obama Mortgage type loan under the Making Home Affordable program that is specifically for second liens, but this program will not continue indefinitely--best to look into it as soon as possible.

  2. Isaac

    Hey Joe, I am a disabled veteran that my spouse has decided to move her life a different direction. I want to buy out and keep home. The VA refinance home has approximately $90,000 equity. We agreed to a buyout of $40,000. I am thinking VA second mortgage. Need help deciding on correct approach. Thanks ISAAC MITCHELL

    • Joe Wallace

      Have you considered getting pre-approved? You can apply online at www.VAloans.com to learn how much you could get pre-approved for and plan from there. (VALoans.com is a private company and not a government website or agency.)

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