Restoring Your VA Entitlement
It may come as a surprise to some, but the VA home loan guaranty is not a one-shot deal. This special no money down, low closing cost loan program reserved for veterans, service members and certain National Guard and Reservists can be used more than just once. As long as you follow specific guidelines on restoring previously used VA entitlement, you can buy another home using a VA loan. What are the ways?
The Certificate of Eligibility
Evidence of a VA borrower’s entitlement is provided by the VA with the Certificate of Eligibility. This form lists the individual’s name, discharge date and other important information and has a special section for the entitlement amount.
Today, the entitlement is $36,000 and the VA will guarantee 25 percent of any VA loan up to $417,000. As long as the lender approved the loans under VA guidelines, should the loan ever go into default, the lender is guaranteed 25 percent of the defaulted loan.
For example, if a home costs $200,000, the veteran will use up all of the existing entitlement.
VA home loans are used exclusively for owner-occupied purchases. The way to restore your entitlement is to sell the home financed with a VA loan. The sale of the property restores your entitlement to the original $36,000 amount for future use.
When you refinance an existing VA loan, the entitlement is automatically restored then immediately reapplied to the new mortgage. The property doesn’t change, but a new loan replaces the old one. You don’t need to do anything when refinancing a mortgage regarding your entitlement; your VA lender will take care of that for you.
VA loans are assumable as long as the buyer is qualified for your existing mortgage. However, unless your buyer who assumes your VA loan also has VA eligibility, your entitlement will remain unrestored until the buyer refinances out of your old VA loan or otherwise disposes the property.