Restoration of entitlement is not an automatic process, but requires some work from the borrower. Learn about the requirements for restoring entitlement and how you can reuse your VA loan benefits.
VA entitlement is a financial guaranty from the government, which pledges to repay a portion of your home mortgage in the event of default.
Your VA entitlement is a specific dollar amount. Veterans and service members using the VA loan benefit for the first time have their full VA loan entitlement available, which allows qualified buyers to borrow as much as they can afford without having to make a down payment.
But borrowers who have utilized a VA home loan before may have some or none of their entitlement remaining when the time comes for them to seek another VA purchase.
And this means a borrower may have to apply for a restoration of entitlement prior to getting a new loan.
A VA restoration of entitlement allows borrowers who have previously utilized their VA loan entitlement to purchase another home with the VA’s guaranty again.
Veterans can restore previously used VA entitlement by:
Let's take a closer look at those three paths.
This is the easiest and most common path to entitlement restoration.
There are two big keys to this path. First, you need to sell the home and be able to repay your VA loan balance in full. Selling your home for less than you owe (known as a short sale) requires permission from your loan servicer and results in the loss of whatever entitlement you used to acquire the property.
The second piece is disposing of the property, which is a given when selling or having another Veteran assume your loan. But it's an important part of entitlement restoration, as you'll see when we look at refinance next.
Restoration looks different when we talk about refinance. The big reason why is that you aren't disposing of the property when you refinance.
A VA homeowner can refinance into a non-VA loan (conventional, FHA, USDA) and pay off their original VA loan in full. But because you're holding onto the property instead of handing it over to a new buyer, entitlement restoration options get narrower. Otherwise, VA buyers could potentially purchase home after home, refinancing each new VA loan and fully restoring their entitlement each time.
The VA loan program is meant to help veterans purchase primary residences they live in full time, rather than amass a bunch of investment properties.
To that end, the VA allows veterans a one-time opportunity to refinance their loan, keep their home and fully restore their entitlement, which we'll explore in the last section.
Some borrowers who have previously purchased a home with a VA loan will have no entitlement remaining or their COE will say, “Paid in full, no restoration.” This means their previous loan was paid off, but the VA lacks information as to how or if the property was disposed.
In order to update the COE to reflect current information, borrowers should fill out VA form 26-1880, focusing on Section 10 - Previous VA Loans. A VA-approved lender like Veterans United Home Loans can also help veterans take care of this.
Oftentimes the VA will want to see a copy of the final closing documents from the sale of the home, so it is important keep all paperwork received from the title company at closing.
Restoration of entitlement is not an automatic process. It requires an application from the borrower.
Once an application has been processed and entitlement restored, borrowers can then move forward with the process of applying for a new VA home loan, generally following the same guidelines as the previous loan.
VA entitlement may also be restored one time only if the Veteran has repaid the prior VA loan in full, but has not disposed of the property purchased with the prior VA loan.
This one-time exception to the “must-sell” mandate gives the borrower an opportunity to keep the first home and seek a new VA loan for another home.
Borrowers who choose to utilize the “one-time restoration” allowance will have to dispose of all property in the future if they again seek restoration of entitlement.
There are no rules concerning the disposition of the first property once the loan has been paid in full, leaving it to be served as a rental property or vacation home without penalties or restrictions from the VA.
However, the new property purchased with the VA loan is still under department regulations involving occupancy, business use of the space and marketability, among other issues.
A Veterans United loan specialist can examine your entitlement situation and explain the steps needed to use your home loan benefits. Call 855-870-8845 or visit Veterans United Home Loans online to get started today.