Some vets buy their first home with a VA mortgage only to outgrow it in a few years. Those who are expanding their families may decide it's time to move into a larger property and start exploring the market again. Fortunately, the VA mortgage program provides a lot of flexibility around reusing the benefit to get a second VA loan.
Military homebuyers who want to take out a new VA loan have options. It’s possible to restore some or all of your VA loan entitlement, and in some cases, it’s even possible to take a second VA loan without selling your home.
The VA loan program entitles qualified military homebuyers to a 25% guarantee—essentially backing the $0 down loan to reduce risk for VA lenders. This guarantee means that even in the event of a default, lenders will retain 25% of the original loan amount.
The funds provided for this guarantee are called entitlement. The basic VA loan entitlement is $36,000 and a second tier of entitlement is also available, generally set at $91,600. For most VA homebuyers, that means a total of $127,600 is available to cover the 25% guarantee. Buyers in high-cost counties will see higher limits.
Let’s take a look at how VA entitlement comes into play when you’re hoping to get a second VA home loan.
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Selling your home and buying another is the most common (and straightforward) way to reuse your VA home loan benefit. Let’s say you buy a $200,000 home, and the VA guarantees 25% of the loan amount, or $50,000. When you sell your home, that $50,000 is freed up, and your full $127,600 entitlement becomes available.
Assuming that you can afford both mortgage payments, it is possible to get a second VA loan without selling your home.
Let’s say you buy a $200,000 home, and the VA guarantees 25% of the loan amount, or $50,000. Even with that $50,000 tied up in the first mortgage, you have $77,600 in remaining entitlement. That means you could buy a home for up to $310,400 without making a down payment.
Keep in mind you’ll need to occupy the new home as your primary residence—it’s not possible to purchase a vacation or investment property with your VA loan benefit.
Any entitlement tied up in a mortgage that you foreclose or otherwise default on will be lost, but that doesn’t always mean you can’t reuse your VA loan.
Imagine you buy a $200,000 home, using $50,000 of your entitlement. If you default on the mortgage, that $50,000 can’t be restored. But you’d still have $77,600 in second-tier entitlement left over.
Assuming that you meet lenders’ credit and waiting period requirements, you could use your second-tier entitlement to get a second VA home loan.
To regain access to the full VA entitlement amount, you’ll need to restore any previously used entitlement. This can be done in one of three ways:
When you sell your home, your entitlement is often restored automatically. In some cases, you’ll need to apply for restoration. Usually, your entitlement can be restored as many times as you sell a home.
When you pay off a VA mortgage, you can apply for a one-time restoration of entitlement by providing documentation that the loan has been paid in full.
In some cases, your entitlement can be restored in order to obtain a cash-out refinance for the property you currently own. This entitlement can only be used for refinance purposes.
The entitlement restoration process goes through the Department of Veterans Affairs, who will require various forms and documentation depending on your unique scenario. A VA-specialized lender will walk you through the steps required to apply for entitlement restoration.