Restoring Your VA Loan Entitlement
VA Loans are For Life
One of the biggest misconceptions about VA loans is that they're a one-time opportunity. The reality is you've earned this benefit for life.
Veterans and service members can use the VA loan program over and over again. It's even possible to have more than one VA loan at the same time.
There are a few different ways to approach reusing your VA loan benefit. Homeowners who want to sell their current home and purchase again can fully restore their VA loan entitlement for a new loan.
Let's take a closer look at restoration of entitlement and what it can mean for VA buyers.
Using & Reusing Entitlement
Every time you use a VA loan, you're using at least a portion of your VA loan entitlement.
This topic can get tricky even for people in the mortgage industry, and we encourage you to check out our lesson on VA loan entitlement for a more detailed breakdown. Generally, the entitlement you use when buying a home remains tied up in that property until the loan is repaid in full.
For example, if you purchase a home for $200,000, then about $50,000 of your entitlement is wrapped up in that home, given the nature of the VA's guaranty. You could purchase again without selling that home, but you would have less zero-down buying power because of your diminished VA loan entitlement.
But if you're ready to sell that home and get another, that's a different story. As long as you sell the home and pay off the loan in full, you can have your full entitlement restored and available for another purchase. Having your full entitlement means being able to borrow as much as a lender is willing to lend without the need for a down payment.
Restoring your entitlement is a simple process that involves a little paperwork and documentation.
How to Restore Your Entitlement
Homeowners and lenders will need some documentation about the home's sale in order to get your full entitlement restored.
What typically happens is that lenders will ask for a copy of the Closing Disclosure from your home sale. That settlement statement will have details about your sale price and payoff information for the original VA loan.
With that documentation, a lender like Veterans United can submit a formal application to restore your entitlement through the VA's online loan portal. Homeowners without a copy of their Closing Disclosure may be able to satisfy the VA with a copy of the home's warranty deed or even tax records.
That kind of documentation is important because the other key to getting your full VA loan entitlement restored is that you aren't holding onto the property. In nearly all instances, veterans can't keep the home for themselves and still fully restore their entitlement.
A common example is when a veteran buys a home with a VA loan but later refinances with another loan type. That conventional or FHA refinance repays the original VA loan in full.
But because the veteran isn't disposing of the property, they would need to invoke the VA's one-time restoration of entitlement option in order to fully restore that entitlement. That's a limited opportunity that comes with some big considerations.
In most cases, veterans will be selling and disposing of their property in order to fully restore their entitlement.
Turn times can vary, but it typically takes about a week for the VA to review the entitlement restoration paperwork and issue a new Certificate of Eligibility for the veteran.
Back-to-Back Loan Closings
Questions about getting VA loan entitlement restored often rise to the forefront when veterans are selling their old home and closing on a new home purchase at the same time.
The good news is it's possible to handle everything in a single day to ensure you get the full zero-down buying power of your entitlement.
For example, let’s say you purchased a home a few years ago for $200,000. Now, you’re moving to take a new job and want to purchase a $300,000 home in another non-high cost county.
Depending on where you're moving, you could need a down payment for this loan unless you have your full entitlement available. For cases like this, selling the home and getting your full entitlement restored before your new purchase closes is critical.
Every borrower’s situation is different. But it’s possible to close on your home sale, get your entitlement restored and close on your new purchase all in the same day. Having at least a few days’ worth of cushion is always preferable.
Working with a lender that truly knows VA loans can make a huge difference if you're considering back-to-back closings. The last thing you want is uncertainty surrounding your hard-earned VA loan entitlement as you move from closing on a sale to closing on your new purchase.