VA loans

Restoring Previously Used VA Loan Entitlement

December 9, 2013

Restoring Previously Used VA Loan Entitlement

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When you use your VA loan benefits for the first time, there is no question about the amount of entitlement you have once your eligibility for the loan has been established. But what about those who have taken out VA home loans before?

In the case of these second-time or “subsequent use” borrowers, VA loan entitlement must be restored in order to get full eligibility for a VA loan. The rules for restoring VA entitlement are found in VA Pamphlet 26-7, Chapter Two, which says:

“Entitlement previously used in connection with a VA home loan may be restored under certain circumstances. Once restored, it can be used again for another VA loan.”

When is this restoration of VA loan entitlement possible? It can be done when:

  • The property which secured the VA-guaranteed loan has been sold, and the loan has been paid in full.
  • An eligible veteran-transferee has agreed to assume the outstanding balance on a VA loan and substitute his or her entitlement for the same amount originally used on the loan. The assuming veteran must also meet occupancy, income, and credit requirements of the law.

The VA also makes provision for what it calls “special restoration cases” which may apply to some borrowers. A second-time borrower or subsequent use VA loan applicant can apply for restoration of full entitlement when:

  • The prior VA loan has been paid in full and the veteran has made application for a refinance loan to be secured by the same property which secured the prior VA loan. This includes refinancing situations in which the prior loan will be paid off at closing from a VA refinancing loan on the same property.
  • The prior VA loan has been paid in full, but the veteran has not disposed of the property securing the loan. The veteran may obtain restoration of the entitlement used on the prior loan in order to purchase a different property, one time only. Once such restoration is effected, the veteran’s COE will indicate the one-time restoration. It will also advise that any future restoration will require disposal of all property obtained with a VA loan.

Those two scenarios are reprinted directly from VA Pamphlet 26-7, Chapter Two. Borrowers who aren’t sure what to do when applying for VA loan entitlement restoration should discuss their needs with a loan officer. You can also contact the VA directly at 1-800 827-1000 for further assistance.

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

7 Comments
  1. Larry

    Hello, What is the arbitration process for appealing a decision that was made in error? The VA is saying the house was a total loss and they are out the full price of the house. Which isn't the case as the house was sold after the foreclosure. I had a VA loan previously and in a divorce the house was given to my ex. She subsequently refinanced the house after the divorce and two years later lost it due to foreclosure. Not even sure how she could have even done that. When she refinanced the house I wasn't required to be there to sign the paperwork. When they did foreclose on the house they didn't notify me that the house was in trouble. My ex moved to Idaho and I assumed she had sold it. I wasn't in the loop to know different. I realize that it was my loan but in this case it wasn't my fault the loan defaulted. When we got divorced the loan was current. I have paperwork to prove all of it. This seems like a very bad process if there isn't considerations in place to protect Vets with divorce situations that they can't keep the house. The ex can just default on the house and the Vet is the one paying the price. Just isn't fair. In my case I wasn't even aware that the house was in foreclosure. It wasn't until I went to apply for another VA loan last month that I found this all out. Any ideas how to resolve this? Thanks in advance!

    • Joe Wallace

      You should contact the VA Regional Loan Center with jurisdiction over your area to discuss the situation and be prepared to submit documentation to back your claim. Find yours at http://www.benefits.va.gov/homeloans/contact_rlc_info.asp

  2. Ralph Bartley

    I got divorce and later lost it due to foreclosure back in 1997. How can I find out what it will cost to get my VA loan restored?

    • Joe Wallace

      Contact the VA directly for assistance by calling 1-800 827-1000.

  3. Y Dread

    We did a short sale in Dec. of 2012. We were on time with payments before and during the short sale. ( I now it's rare but we were) We have been on time with other credit obligations since then. I have read that in situations like this there are some lenders who will approved a loan to purchase again in less than 2 years. Is this true and if so who are they? Also with having a short sale is it possible to get VA entitlements fully restored?

    • Joe Wallace

      Depending on the lender and the circumstances it may be possible but if you owe the government money due to a loss on the short sale you would need to resolve that to the satisfaction of the Department of Veterans Affairs. Contact them directly for assistance by calling 1-800 827-1000.

    • Joe Wallace

      Please send an e-mail to assistance@valoans.com with a contact name and phone number and someone will get back to you about your needs.

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