The VA loan program has made it more affordable for military borrowers to achieve the goal of home ownership. Created in 1944 through the Servicemen's Readjustment Act, this program provides no-down-payment and flexible options. Borrowers who have not have qualified for a traditional mortgage loan may find that they do qualify for the VA loan program.
VA loans are not a one-time benefit and can be used over and over again. In some cases, you may have more than one existing VA loan at the same time. If you want to use your benefit more than once, here's what you need to know.
Understanding VA Entitlement
The maximum guaranty that the VA provides to a borrower is what is referred to as the entitlement. There is no cap on the amount that can be borrowed, but the VA does limit how much they guaranty. Private lenders who make the actual loans will consider that limit when they determine how much money they are willing to lend.
Eligible borrowers have $36,000 available as their basic entitlement amount. Private lenders will lend up to four times the available amount without requiring a down payment. The borrower must meet the lender's credit and income requirements. For a borrower who hasn't used their entitlement, this means they can receive a loan for up to $144,000.
Reusing Your VA Eligibility
You can use your VA eligibility to buy another home or if you plan to sell your existing home. The rules are different based on your particular scenario.
The most common way to reuse your VA eligibility is when you are using the loan option to buy another home and sell your existing home. The proceeds of the home sale should ideally be used to pay off the full mortgage balance of the current loan. Doing so will allow you to regain your total entitlement.
VA loans are also assumable by buyers, but the entitlement can only be restored if the borrower assumes the loan is VA qualified. For instance, say you've used $100,000 of your entitlement, and you sell your home to an eligible VA borrower who assumes your loan. Your $100,000 entitlement would be restored while the eligible VA borrower uses their entitlement to assume the loan.
Another possible scenario occurs if you decide to rent the home and buy a house in a different area. Let's say you used $50,000 of your entitlement and have $75,000 leftover. You can purchase your next home for up to $300,000 without having to pay a down payment. You can still buy a home above that amount as long as you can cover a down payment for the excess amount.
Restoring Your Eligibility
To have more than one VA loan, you must have some entitlement remaining and meet the income and credit requirements of the lender for the second loan. When you want to use a new VA loan, your eligibility must first be restored, unless you have enough entitlement to cover the new home.
This is completed by filling out VA Form 26-1880 (surviving spouses will use VA Form 26-1817). This is the same form that's used when obtaining a Certificate of Eligibility. You can mail the form, submit it online on the VA's website, or apply through your lender. The new Certificate of Eligibility will show you your basic entitlement and the amount that's currently being used from the previous loan. It does not disclose the additional entitlement amount that is available to you. Be aware that if you plan to reuse your entitlement, you might be paying a higher funding fee due to it being used previously.
