The tremendous the growth of the housing market is being pushed along by the lower-than-expected long-term interest rates and the idea that real estate is a wise investment. In addition, consumers are more reluctant to plow their hard-earned cash into the inconsistent conventional financial markets and now are buying an additional piece of real estate sooner in their lives.
In fact, the second-home market is so huge and important to the United States’ economy that the largest survey ever conducted by National Association of Realtors was dedicated to the second-home phenomenon that grew 40 percent in the number of homes sold from 1995-2000. NAR’s definition of “second home” now includes single-family dwellings, including condominiums, other than a primary residence. Last year, the purchase of investment property and vacation homes accounted for more than one-third of residential transactions.
Some of these homes will eventually become retirement homes where seniors and aging baby boomers will spend most of their time. Why not purchase it with the help of a VA loan? 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 your 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 you use the home more than six months of the year, it can be defined as your primary residence.
“The law was not intended to help people enter the business of real estate and purchase lots of homes,” said Chris Michel, a former naval reservist and founder and president of military.com, an Internet site targeting present and former military personnel and their families. “The law was written to help people afford the home that they are going to occupy.
“A VA loan can most definitely help purchase that next home or retirement home. Hopefully in their retirement years, people are spending 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 wetter months of the year in the Puget Sound, Wash., area. However, also you wish to dodge the sizzling desert summers, so the plan to is to use the Arizona home October through April. That seven-month period would constitute the largest block of time you lived 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 were an eligible veteran who was willing to swap his/her available eligibility for yours.
On Jan. 1, 2005, the VA loan guaranty increased to $89,913 and the maximum loan amount was raised to $359,650. The critical requirements for eligibility are an honorable discharge, an eligibility certificate and the ability to make the loan payments. All VA loans have a funding fee for a borrower’s first VA loan of 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 seniors and aging boomers still don’t know that reservists 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 or Coast Guard Reserves, or the Army National Guard or Air National Guard, are eligible for VA home loans, including no-down-payment programs.
In addition, reservists who were called up to active duty after August 1990 and served 90 days continuously on active recall are eligible for VA loans and other benefits. This provision was inserted to help the thousands of men and women who were pressed into service during Operation Enduring Freedom and Operation Iraqi Freedom.
“There are a lot more people out there who are eligible for these services now,” Michel said. “Many of them don’t even know about what might be possible.”
Tom Kelly’s new book, “The New Reverse Mortgage Formula,” (John Wiley & Sons) is now available in local libraries and bookstores. Tom can be reached at news@tomkelly.com.
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