VA loan entitlement is a lifelong benefit available to eligible service members and Veterans, but what happens when you’ve used it all? Restoring VA entitlement is an option for Veterans who want to reuse their home loan benefit. Let’s explore the steps and requirements involved in restoring entitlement.
Restoring VA entitlement isn’t as complicated as it may seem. There are typically three ways a Veteran can restore their entitlement. These include:
Let’s take a look at each scenario and the requirements below.
The first option allows you to sell the home and repay your VA loan balance in full to restore entitlement. This may not be the best option if you don’t have much equity in your home yet. You might encounter a short sale if you sell the home for less than you owe, which requires permission from your lender and potentially lose the entitlement tied to the property.
The second alternative is to sell the property to another eligible Veteran. The Veteran who purchases the home from you will assume, or take responsibility, for the loan. Their entitlement will then be transferred into the home, restoring your VA entitlement. This could be a quick option if you know a Veteran in the market.
The third option is to refinance your current loan into a non-VA loan, such as conventional or FHA, and pay off the original VA loan in full. In this scenario, the home is being retained rather than sold. With this, entitlement restoration options are slimmer to prevent VA borrowers from reusing their benefits over and over to purchase investment properties.
If you want to keep your home and restore your entitlement, the VA allows a “one-time restoration of entitlement.” As the name states, it can only be used once in a Veteran’s lifetime.
This one-time exception gives Veterans an opportunity to keep the first home and seek a new VA loan for another home. However, if you wish to use this benefit, you must sell all property to restore entitlement again. The VA does not impose any restrictions once the first property has been paid in full, enabling it to be utilized as a rental or vacation home without any penalties.
Typically, entitlement is restored as soon as you pay off the VA loan. This looks different for every Veteran depending on the loan amount. It greatly depends on the loan length and how much you have already paid off. Therefore, every situation may be different.
If you want to keep the property, you can only restore your VA entitlement once through the “one-time restoration of entitlement.” However, if you dispose of the property financed with a VA loan, it’s possible to reuse your benefits multiple times. Make sure to talk with your lender to see how you can best use your VA benefits.
If your restoration application is rejected, you may have an outstanding balance on your original loan. A common case is if you foreclosed on your original loan and still have a remaining balance due, you may be ineligible for full restoration.
Contact a VA lender to thoroughly review your entitlement options and find the best solution for your specific situation.