Restoring VA Loan Entitlement

Those who have already used their VA loan entitlement to buy a home don’t always keep that home for the entire term of the loan. Do VA borrowers get another chance to use their VA loan entitlement?

The short answer is, “It depends.” If you have paid off a VA loan and sold the property, you can apply to have eligibility restored.

This is the most common re-use of VA loan eligibility — a buyer who has either paid off the original VA-guaranteed note, or has sold the home and used the proceeds to pay off the original loan is able to get their full entitlement restored.

Some home owners have paid off their VA loan, still own the property and want to buy a new house. Can the veteran get entitlement in this situation? According to the Department of Veterans Affairs, “…on a one-time only basis, you may have your eligibility restored if your prior VA loan has been paid in full but you still own the property.”

As with most things related to VA loans, the buyer must supply proof that the prior VA loan has been paid off. If the property has been sold, evidence of that sale is also required. Documents acceptable to the VA include a “paid in full statement” from the lender, or a copy of the HUD-1 paperwork completed when the property has been sold or refinanced.

But VA loan eligibility reinstatement is not automatic. The buyer must submit a VA From 26-1880 along with all required proof-of-sale and evidence that the old loan has been paid in full.

There’s an important detail VA borrowers who have paid off the previous loan, still own the property and want to apply for the one-time-only VA loan eligibility restoration should know: VA occupancy rules for the new property apply and you must certify that the new property is purchased as the primary residence. Since the original VA loan has been paid off, the terms of the original loan have been fulfilled. Those terms would now apply to the new property.