Restoring Previously Used VA Loan Entitlement
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.