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Partial VA Loan Entitlement: A Reader Question

096-logoA reader asks, “In 2003 i went thru a divorce a repossession of my home thru the VA, suffered a 50k loss. Now in 2014 im trying to buy another home thru the VA.

I tried to get my COE and they told me that i didn’t qualify for full benefits and that the benefits balance that i had left after the repo I could use. I called the va and tried to make a payment plan of some, kind but they refused. Will I be able to buy a home with the remaining benefits? At the time of the foreclosure I was not listed as a service connected veteran! Now I’m drawing disability paid at 100% due to unemployability. Can you explain this since don’t have the know of how it works?”

Borrowers in situations like this should contact the Department of Veterans Affairs directly by calling 1-800 827-1000. Speak with a VA representative to get advice on questions like these as you may have issues related to unpaid debts to the VA due to the foreclosure or loss of the home.

Borrowers who owe money to the VA as the result of a default and foreclosure on a VA mortgage will need to settle the unpaid debt to the satisfaction of the Department of Veterans Affairs before a new VA loan can be issued.

The basic reader question here, specific circumstances aside, seems to be whether or not partial VA loan entitlement can be used on a new purchase VA mortgage. VA loan rules governing entitlement are found in VA Pamphlet 26-7. Chapter Two of VA Pamphlet 26-7 states:

“If the veteran previously used entitlement, which has not been restored, available entitlement is reduced by the amount used on the prior loan(s). The lender has two options in this situation:

• Make the loan knowing that VA’s guaranty is limited to the amount of available entitlement, or
• Have the veteran apply for restoration of previously used entitlement.

Note: The possible additional entitlement for certain loans in excess of $144,000 may be available even if the veteran has no entitlement or partial basic entitlement. However, in such cases, the lack of full entitlement may result in lenders receiving less than a 25 percent guaranty from VA. It is the lender’s responsibility to ensure they receive a sufficient amount of guaranty to satisfy secondary market requirements.”

Again, borrowers who have a VA loan foreclosure in their credit history need to contact the VA to see whether there is any financial obligation to the federal government as a result of the foreclosure.

Do you have questions about VA home loans or VA refinance loans? Ask us in the comments section.

Bruce Reichstein

About Bruce Reichstein

Bruce Reichstein is an Expert on (VA) Military/Veteran Home Loan Guidelines for over 26 years. He is an experienced VA Loan Mortgage Banker who is passionate about assisting US Military Veterans utilize their Veteran Eligibility to purchase a home.

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