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 in most of the country to borrow up to $453,100 before 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.
But prospective homeowners are able to apply for restored VA loan eligibility for a new home loan only after they have paid the first loan in full and sold the property.
But there is a one-time exception to the “must-sell” mandate, giving 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.
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 8. A VA-approved lender can also help veterans take care of this. Oftentimes the VA will want to see a copy of the final HUD 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.
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.