How to Restore a VA Loan
Whether you are moving to a new home or looking to purchase a second one, you may be wondering if you can use your full VA loan entitlement more than once. While the loan entitlement is limited, there are ways to restore it and extend your ability to buy without paying a down payment.
Can I restore my full entitlement?
Absolutely. Your VA loan entitlement is a lifelong benefit that you can use time and again. The key is knowing how to restore your entitlement eligibility after buying a property. Let’s take a look at your options.
How do I get my VA loan entitlement restored?
There are three ways to restore your full VA loan entitlement.
1. Pay off the loan and sell the property.
The first option, paying off the loan in full and getting rid of the property, is fairly straightforward. After you sell your first property and pay off your initial loan, you will have to let the VA know so they can update your Certificate of Eligibility. You can do this by filling out VA form 26-1880. Make sure to keep all the paperwork surrounding the sale and closing of the property in case the VA requests documentation. Once your application is approved, you will be able to apply for another VA loan with your full entitlement.
2. Sell the property to another veteran.
The second option is to sell the property to another qualified VA loan beneficiary. In this case, the veteran who purchases from you will take over your loan, and their entitlement will be transferred into your name. Before making the sale, you need to receive approval from the lender, who will check that the buyer is qualified, and you will also need to confirm with the VA that you are eligible to have your entitlement restored through this swap.
3. Apply for a one-time Restoration of Entitlement.
The final option is to apply for a one-time Restoration of Entitlement. The main difference between this and the first option is that with the one-time Restoration of Entitlement, you do not need to sell your first property. This is a major benefit, because you can then rent out the first property or use it as a vacation home. However, you are still required to pay off the initial loan in full to be eligible for the restoration. That usually means either paying the entire mortgage, which can take up to 30 years, or refinancing the VA loan into another type of mortgage. You can apply for the Restoration of Entitlement using the same form as the first option, VA form 26-1880.
There are a couple important considerations to keep in mind when applying for a one-time Restoration of Entitlement. The first, and largest, is that if you use this benefit and decide in the future to purchase another house using a VA loan, you will have to first sell or get rid of all properties you purchased with a VA loan in order to restore your entitlement. You should also note that although the benefit allows you to own more than one home, the VA still requires that you use the new home as your primary residence.
Why can't I get my VA loan eligibility restored?
If your restoration application has been rejected, it may be due to an outstanding balance on your original loan. For example, if you foreclosed on your original loan and still have a remaining balance due, or if you gave up the deed to the home instead of foreclosing, you may be ineligible for full restoration. If this is the case, don’t forget to check if you have remaining entitlement money if you didn’t use your entire entitlement on your first home that you can put toward a second loan.
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