VA loans have a variety of uses and flexible options that make them very attractive for first time h...

1. VA Loans and Second Mortgages
VA loans have a variety of uses and flexible options that make them very attractive for first time
home buyers. 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 area also rules on loan assumption.
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. We ran into this short article that
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selling any more than VA rules covering the first mortgage.