Change Date

September 15, 2004, Change 4

This section has been changed to create subsection lettering.

a. What is Secondary Borrowing?

For purposes of this topic, secondary borrowing refers to the veteran obtaining a second mortgage simultaneously with a VA-guaranteed first mortgage, both secured by the same property.

b. Policy

Secondary borrowing is acceptable as long as

·   the veteran is not placed in a substantially worse position than if the entire amount borrowed had been guaranteed by VA, and

·   the requirements detailed below are met.

c. Requirements

The second mortgage must meet the following requirements:

Factor

Requirement

Documentation

The lender must submit documentation disclosing the source, amount, and repayment terms of the second mortgage and agreement to such terms by the veteran and any co-obligors.

Lien Position

The second mortgage must be subordinated to the VA-guaranteed loan, that is, the second mortgage must be in a junior lien position relative to the VA loan.

Allowable Purposes

Proceeds of the second mortgage may be used for a variety of purposes, including but not limited to

·   closing costs, or

·   a down payment to meet secondary market requirements of the lender.

But may not be used to cover any portion of a down payment required by VA to cover the excess of the purchase price over VA’s reasonable value.