Written by Isaac. F. Davis

 

One of the most common misconceptions regarding the VA Home Loan Guaranty Program is that it’s a one-time deal.  Many people believe that once they get a VA loan, they can never get one again.  On the contrary, as long as a veteran has entitlement, the benefit can be used again and again.  Entitlement is what each VA-eligible borrower receives in the form of a VA loan guaranty.  And, in some cases, entitlement may need to be restored from a previous loan in order to cover the new loan being sought.

There are several ways to restore entitlement. One way is to simply pay off a VA loan in full and dispose of the property that was financed.  This might include selling the home and paying the VA Loan with proceeds from the sale.  In this example VA entitlement would be restored. 

What if a homeowner wants to keep the property after paying off a VA Home Loan? For each VA borrower, there is a one-time entitlement restoration for VA loan paid and property retained. This occurs when a veteran achieves satisfaction of mortgage and continues to own the home. But, remember this is only available once to each VA borrower.

Replacement is another way to restore entitlement.  When a veteran buys another veteran’s home and assumes the VA mortgage, the veteran buyer can substitute his or her entitlement for that of the veteran seller’s.  The veteran buyer must occupy the property and complete VA Form 26-8106. The veteran buyer must also have enough entitlement to put in place of the seller’s.  And, finally, both buyer and seller must prove eligibility.  The result is a release of liability (ROL) and the veteran seller’s entitlement used for that VA Loan is restored and can be used again.

If a VA Loan is assumed without substitution of entitlement, and the assumer defaults or forecloses on the loan, VA would likely end up paying a claim to the lender.  The entitlement used by the original borrower will not be restored in this case until the VA has been reimbursed for the loss as a result of the default or foreclosure.  In other words, someone must repay the loss in full.

Typically, entitlement is restored when a VA mortgage is paid off or when an eligible qualified veteran assumes a VA Loan and substitutes his or her eligibility for the seller’s.  In certain instances, there is enough entitlement to purchase a home even if the previous loan is not paid off.  Multiple VA loans are rare, but not impossible as long as there is ample entitlement.

In most cases, in order to fully restore entitlement, a prior or existing VA Loan must be paid in full.  Veterans should know that restoration of entitlement does not happen automatically.  Once a VA Loan is paid in full through any of the various means described, the borrower must complete VA Form 26-1880 to let the Department know that his or her intention is to have entitlement restored. As long as he or she provides documentation of satisfaction of mortgage, and in some cases disposal of property, restoration of entitlement is typically granted.   Since entitlement varies from veteran to veteran, talking with a VA Loan specialist can help answer questions regarding restoration of entitlement.