If you use VA financing to buy a home, you agree to occupy it as your primary residence. Generally, this means occupying the home within 60 days of the closing date and remaining in the home as your primary residence.
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The good news is that the VA doesn’t specify how long you have to live in the home. It’s up to your discretion. If you want to sell the home six months after buying it, that’s your prerogative. It may not be in your best financial interest, but the VA won’t stop you.
The VA Rules
What the VA does state is that as long as the home as VA financing on it, you must occupy it. If you choose to sell the home and pay off the loan, you can. But you shouldn’t move out of the home if you keep the VA loan on it.
If you do want to move out of the home, but keep it, you may apply for one of the VA’s exceptions. They allow this exception one time, so make sure you use it wisely. If you do qualify using one of the scenarios below, you will be required to refinance the VA loan with the VA IRRRL program. The IRRRL does not have specific occupancy guidelines. As long as you can prove that you lived in the home prior to the refinance, it will suffice.
So what qualifies as an exception to the VA’s rule of living in the home as long as you have VA financing? Read below:
- Your job relocated you – This pertains to both military and civilian jobs. If you can no longer easily commute to the job because of the relocation, you may be eligible to refinance your current loan into the IRRRL and keep the home.
- Your family outgrew the home – If you bought a small starter home and have not had children and quickly outgrew the house, you may want to move. If you have a reason to keep your original home, though, you may be able to do so. You just have to make sure your current home truly doesn’t fit a family of your size comfortably in order for the VA to approve it.
Keep in mind, if you do keep your original home with the VA financing on it, you don’t get that entitlement back. The entitlement is the amount the VA will guarantee a loan for you. Any loan amount that you need on top of the entitlement may require a down payment.
Here’s an example:
Joe bought a $200,000 home with VA financing. He has since gotten married and had children. The home no longer suits his needs, but he knows he could make a decent amount of money renting the home out. Joe applies for an exception with the VA, which they approve. Joe now has $253,400 left in entitlement since he used up $200,000 of his entitlement and veterans receive a total of $453,100. If Joe finds a home for $253,100 or less, he won’t need a down payment. Any money he needs beyond $253,100 though will require a down payment.
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Lenders typically require you to put down 25% of the difference between the VA guaranty and the purchase price. Using the above example, if Joe bought a home for $300,000, he would need $11,725 down on the home (25% of $46,900).
Is the VA IRRRL Tough to Qualify For?
If you are going to use the VA’s one-time exception, you’ll need to qualify for the VA IRRRL program. Like the original VA loan, this program has simple guidelines.
The VA allows lenders to use the original qualifying factors from your VA loan. All that you need to qualify for the loan is a timely mortgage payment history and proof of a net tangible benefit.
The lender will evaluate your mortgage payment history for the last 12 months. Did you make the payments on time? If so, you’ll pass this requirement. If you made a mortgage payment late, (only one 30-day late) you may also qualify. Only certain lenders allow this though. Any late payments beyond 30-days or multiple 30-day late payments will make you ineligible.
Your net tangible benefit is proof that the refinance helps you. In this case, it helps because you are able to move out of the home. But you should also have another benefit, such as a lower payment or better loan term. Even if the interest rate is just 0.5% lower than your current rate, it may qualify as a net tangible benefit.
In short, you don’t have to occupy the home for very long after getting a VA loan. If you didn’t outgrow your home or your job didn’t relocate you, though, it may be to your benefit to stay. If you’ve been in the home for many years, you may be able to sell it for a profit. If you sell it too soon, though, you won’t have any equity in the home if you borrowed the full 100% of the purchase price, which may mean you don’t walk away with any money after the sale of the home.
Make sure you go over each scenario with your loan officer and choose the option that makes the most financial sense.
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