Reusing your VA loan benefits is definitely possible. Here we cover how that works and the two levels of entitlement – basic and bonus.
Whether it's a need for more bedrooms, storage space or even a backyard for the kids to play in, eventually the house that used to comfortably fit two newlyweds becomes cramped beyond belief, and so begins the search for the new perfect house.
This process, often referred to as "moving up," can present obstacles as families try to save up funds for a traditional down payment.
Fortunately, a fantastic benefit of the VA loan program is the ability to purchase with no money down; meaning service members and veterans could bypass this common barrier to homeownership. There's also no maximum on how many times you can use a VA loan, so many veterans may have the option to obtain a second VA loan.
Veterans and active military members who meet the program's service requirements have what's known as VA loan entitlement. This is a specific dollar amount the VA promises to repay to a lender if the veteran defaults on the loan.
Qualified borrowers have two levels of entitlement - basic and bonus. Whenever a veteran purchases a home, they are applying some or all of their entitlement to the loan. The VA typically guarantees a quarter of the loan amount, meaning borrowers will typically use a quarter of their available entitlement.
Entitlement is a concept that even confuses people in the mortgage industry. Check out this post from VA Loans Insider for a more in-depth look.
The bottom line is that when it comes to "moving up" the homebuying ladder, current VA homeowners may actually be able to capitalize without having to sell their current residence.
Your VA home loan benefits are a lifetime benefit. Eligible service members and veterans can seek to have their full entitlement restored once the original loan is repaid in full or use their remaining entitlement to rent out their first home and purchase again with no down payment.
Having more than one VA loan at the same time is certainly possible, but veterans will still need to meet the VA's occupancy requirements.
Learn more about how to reuse your VA Loan benefit: Restoration of Entitlement: How to Reuse Your VA Loan Benefit in Full
VA borrowers looking to move up are more commonly going to sell their current home rather than try to keep it. Generally, in these cases buyers don't have to worry about how much entitlement they have left. That's because veterans who sell their home and pay off the mortgage in full can seek to have their full entitlement restored.
For example, let's say you purchase a home for $144,000. Since the VA insures a quarter of the loan, you've likely got $36,000 of your entitlement tied up in the property. Once you sell the property and the lender is made whole, you can file paperwork to get back the $36,000 used on that first purchase. At that point, veterans looking to "move up" can do so with their full entitlement intact.
For qualified buyers, that means being able to purchase up to $453,100 before needing a down payment in most parts of the country.
Remember that veterans apply a portion of their entitlement when buying a home. Depending on how much is left over, it's actually possible to retain and rent out that first home and purchase again using a second VA loan.
One of the most common examples of this is when an active service member purchases a home at one duty station and then has to PCS to another. But there are some unique restrictions and requirements to utilizing this leftover VA loan entitlement.
You can learn about using remaining entitlement, which is often categorized as second-tier entitlement, in this VA Loans Insider article.
Let a Veterans United home loan specialist help you get clarity on VA Loan entitlement. You can call 855-870-8845 or get started online today.