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VA Loan Entitlement Restoration: A Reader Question

By
Mortgage and Lending with www.OneTimeClose.com

A reader asks, “My husband is a veteran and our first home was purchased on a VA loan – we have paid off the loan and now own the home. We are interested in purchasing a second home nearby as our primary residence and will be renovating our first home prior to selling. Will we be eligible for a VA loan on a second home in this circumstance?”

There are two basic issues which need to be addressed here. One is the question of VA loan eligibility, the other is the disposition of the first property bought and paid for with a VA mortgage.

VA borrowers who use their VA loan entitlement on a home loan can indeed get eligibility restored once the property has been paid in full or sold, but such restoration is not automatic–the borrower must apply to have it restored.

In situations where a borrower wishes to refinance a home using a VA Interest Rate Reduction Refinancing loan, no VA loan entitlement restoration is required, but for a cash-out refinancing loan or a new home purchase, the borrower must apply.

The Department of Veterans Affairs explains all this in its frequently asked questions section on the official site, which includes the following:

Q: I have already obtained one VA loan. Can I get another one?

A: Yes, your eligibility is reusable depending on the circumstances. Normally, if you have paid off your prior VA loan and disposed of the property, you can have your used eligibility restored for additional use. Also, on a one-time only basis, you may have your eligibility restored if your prior VA loan has been paid in full but you still own the property. In either case, to obtain restoration of eligibility, the veteran must send a completed VA Form 26-1880 to our Atlanta Eligibility Center. To prevent delays in processing, it is also advisable to include evidence that the prior loan has been paid in full and, if applicable, the property disposed of.”

The evidence requested by the VA can be a paid-in-full statement from the former lender, or a copy (never send the original) of your HUD-1 settlement statement issued when the property is sold or refinanced.

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