VA loans are a great option for those who are eligible (read more about VA eligibility here) but they can be confusing.
Often, veterans believe that once they have used their VA entitlement, it is gone forever. This is not always the case. In fact, you can use VA restoration of entitlement to buy another home, refinance with cash out, or lower your VA interest rate.
One-time restoration of entitlement is a popular VA loan term that creates some of this confusion. But, as you will see there are ways to use VA loans repeatedly. Even having two VA loans at one time is possible. But where do you start?
VA Certificate of Eligibility
So, the most basic qualification for a VA loan starts with the VA certificate of eligibility (COE for short.) In order to receive the certificate of eligibility, you must be…
- Active military with sufficient service completed
- A reservist or National Guard with enough credits
- A military Veteran
- A qualified surviving Spouse of deceased Veteran
With the first use, there is $36,000 of basic entitlement available. This figure is confusing as well. Does it mean someone can just borrow $36,000? Actually, it means a qualifying VA borrower may borrow up to the maximum VA loan limit for the county. The base VA loan limit for 2019 is $484,350 and $726,525 for high balance counties.
Next is bonus entitlement, also called second-tier entitlement, which helps VA borrowers do some wonderful things. This entitlement allows an eligible borrower to have multiple VA loans at once or purchase a higher priced home with a VA jumbo loan up to $1,000,000. These benefits often fly under the radar, and regretfully many Veterans or even mortgage lenders do not take advantage of them.
How to Use VA Restoration of Title
The good news is that if you have used VA entitlement and are looking to use it again, there are several ways to do so. In certain scenarios, restoration is possible on previously used entitlement. Once the VA entitlement has been restored, it is possible to obtain another VA loan. There are two VA restoration types:
- Basic Restoration
- Special Restoration
VA Loan Basic Restoration
A basic restoration is the first that we will touch on. Like its name implies, it is simple.
If a VA borrower sells a home and pays off the entire VA Loan (not a short sale), it will restore entitlement. This even works for selling and buying a home simultaneously. So, in theory, if a Veteran sells their home and closes on another home on that same day, the VA lender will just follow through after the closing to restore the eligibility.
VA Loan Assumption Sales
You can also accomplish VA restoration of entitlement in a VA loan assumption sale. In the case of an assumption, an eligible Veteran-transferee assumes the outstanding VA loan balance. Furthermore, the Veteran who assumes the loan may substitute their entitlement for the same amount originally used on the VA loan. Thus, the result is that the original Veteran’s entitlement is restored.
VA Restoration of Entitlement – One Time Restoration
Earlier, we mentioned how VA-eligible borrowers may have two VA loans at once. After certain levels of price/value and loan amounts, VA starts requiring a down payment or equity on the second VA loan.
Paid Off VA Loan in Full
Even if a Veteran has fully paid off their VA loan but keeps the property, they won’t automatically have their basic entitlement restored. To do so, there must be a request for a one-time VA restoration of entitlement. Once completed, the Veteran’s certificate of eligibility will state that the one-time restoration has been used. When the prior property sells, the entitlement is fully restored.
VA Regular Cash Out Refinance
VA offers a refinance that will lend up to 100% of the appraised value as determined by a VA appraiser. When paying off an existing VA loan with a regular cash out VA loan, the entitlement is satisfied, and the entitlement is tied up with the new VA loan. The entitlement is restored in this case.
Refinance to a Non-VA Loan
Finally, there is an option where someone may refinance a VA loan into another non-VA loan. If the price of the new home is too high and the VA bonus entitlement requires more than desired down payment, a refinance could be a good option. In some cases, it could help to refinance the current home to an investment property (if it will be rented out) or a second home (if it will not be rented out) with a conventional loan. Like the first example, the Veteran still owns the property. So, to use full entitlement with possibly no (or least less) down payment on a VA jumbo loan, using a one-time restoration may be the best bet.
Restoring full entitlement in all 3 cases requires that the first property would have to be sold or deeded out of the Veteran’s name. Then it is back to square one with full entitlement.
Do you have questions about your options? Reach out to us today!