You can use your VA home loan benefit as many times as you want. But, with some rare exceptions, you can only have one VA mortgage at a time.
To reuse your VA home loan benefit, you just need to remain eligible and reinstate your entitlement. But there are some rules with implications for the repeated use of your entitlement. So read on to discover the details.
How VA Entitlement Works
VA entitlement is fairly straightforward. A Certificate of Eligibility (COE) will provide information about your VA entitlement. A VA lender can help you confirm your VA loan eligibility and request your COE.
Understanding Your Certificate of Eligibility (COE)
The Department of Veterans Affairs guarantees 25% of your loan value. That means, if you default on your mortgage, the lender can recoup a quarter of the loan amount from the VA – and this is what enables lenders to offer zero down payment loans with great interest rates and no mortgage insurance.
Before VA loan limits were abolished, most VA loans were capped at $144,000. A quarter of $144,000 is $36,000, which is why most COEs indicate a basic entitlement of $36,000. But VA loan limits no longer exist and if you are able to qualify, your lender can issue you a much larger loan amount.
What if my COE says my entitlement is $0?
If you have an existing VA loan worth more than $144,000, you’ll have used up all your entitlement. Your new COE will show your entitlement as $0. Don’t worry. You can reinstate your full entitlement by selling your home and using the proceeds to “redeem” your mortgage (pay it down in full) .
You don’t have to wait until you’ve redeemed your mortgage before you apply for a new one, no matter what your COE says. You can usually close on your purchase on the same day you close on your sale. So moving with a VA loan is as straightforward as doing so with any other mortgage.
Bonus Entitlement Tier 2 Entitlement
The VA uses terms like “bonus entitlement” and “tier 2 entitlement” when working with lenders. These describe guarantees that the VA provides to the lender, above and beyond the basic $36,000.
These are generally internal terms and you’re unlikely to need to know them. The VA website says, “We use these terms when we communicate with lenders about VA-backed loans over $144,000. You won’t need to use these terms when applying for a loan.”
How To Restore VA Loan Entitlement
Here are a few ways to restore your VA entitlement so that you can reuse your VA home loan benefit.
Restore Your VA Entitlement by Refinancing
One option is to refinance the mortgage on your existing home to a non-VA mortgage like a conventional loan or one backed by the FHA or USDA. You could then use your existing home as an investment property and buy a different one using your restored VA entitlement.
Remember that if you use a VA loan to purchase a home, you must live in it as your primary residence (with a few rare exceptions).
Restore Your VA Entitlement by Paying Off Your Mortgage
Another option for restoring your entitlement is to pay off your VA loan balance. This almost instantly puts back whatever entitlement you originally had, usually $36,000.
With a 30 year mortgage, you will pay off your mortgage balance over three decades. Or, if you happen to come into a windfall (perhaps an inheritance), you could pay down your loan early without penalty. All of these options will restore your VA entitlement and allow you to buy a new home with a VA loan (just remember you must live in it).