While a second mortgage may not be a preferred financial option, unexpected expenses or other budget crunches may make it a requirement.
There are some hoops to jump through. Here’s the a breakdown, from the VA Lenders Handbook:
1. Lesser loan. The second mortgage “must be subordinated to the VA-guaranteed loan,” per the handbook. In lender parlance, that makes it a “junior lien.” Put simply, you can’t borrow more on the second go-round than you did for in the first loan.
2. Purpose-driven. The loan can be used for closing costs or other purposes related to the first mortgage. It can even be used for a down payment, but only as part of meeting “secondary market requirements of the lender,” not to cover down-payment dollars required by VA to make up for a home priced higher than the agency’s “reasonable value.”
3. No cash. While the rest of VA second-mortgage rules leave a bit of wiggle room (with words like “may” and “should”), those using the benefit are explicitly not allowed to get cash back as part of their borrowing.
4. Rate talk. Second mortgages can come with a higher interest rate than the first mortgage, but should be within industry standards, per the guidance. That’s part of the requirement that whatever deal is made not limit the borrower’s ability to sell the house; it’s part of an “assumability” provision.
Ready to make a move on a second (or first) mortgage? Check out or VA Loan Center.