Questions On Restoring VA Entitlement Answered

There are, of course, many common questions about the VA loan program that could be addressed, but there are many questions that directly involve restoring VA entitlement after the initial use. These questions often have different contexts, but involve basically the same question: how? One of the most common involves a borrower selling his or her house that is using their VA entitlement and buying another one and would like to use their VA entitlement for the new home. They are wondering what the turnaround time between the sale of their old home to restoration of their entitlement is, and how to speed up the process if they can. This is a somewhat complicated question, and therefore has a somewhat complicated answer.

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The rules to getting your VA entitlement restored aren’t too complicated, but they are very specific. The Pamphlet lists the circumstances that entitlement can be restored, which are when the property for which the original entitlement was used for has been sold, and the other is if the veteran refinances to a non-VA loan on the original loan. In both cases, the VA entitlement will be restored, though the Pamphlet makes a point of mentioning that if the veteran intends to use the entitlement again, he or she must still meet all of the occupancy, income, and credit requirements of the program. From the Pamphlet:

“Entitlement previously used in connection with a VA home loan may be restored under certain circumstances. Once restored, it can be used again for another VA loan. Restoration of previously used entitlement is possible if

● the property which secured the VA-guaranteed loan has been sold, and the loan has been paid in full, or
● an eligible veteran-transferee has agreed to assume the outstanding balance on a VA loan and substitute his or her entitlement for the same amount originally used on the loan. The assuming veteran must also meet occupancy, income, and credit requirements of the law.”

Now, the rules above obviously do not cover every portion of the original question. In regards to turnaround times and ways for borrowers to speed up the process of getting a response, the only thing to do is for the borrower to contact their loan officer and the VA Regional Loan Center that covers their area. Between these two sources, assistance can be provided and the borrower will learn what they can do in their situation to speed up the process. It seems prudent at this point to mention that restoration of VA entitlement is not automatic; it requires action on the part of the borrower. The borrower must apply for restoration, and that is a process your loan officer can best assist you with.

The VA also provides a couple of other scenarios in which a veteran can get restoration of entitlement, “a veteran may obtain restoration of the entitlement used on a prior VA loan under any of the following circumstances:

● the prior VA loan has been paid in full and the veteran has made application for a refinance loan to be secured by the same property which secured the prior VA loan. This includes refinancing situations in which the prior loan will be paid off at closing from a VA refinancing loan on the same property,
OR

● the prior VA loan has been paid in full, but the veteran has not disposed of the property securing the loan. The veteran may obtain restoration of the entitlement used on the prior loan in order to purchase a different property, one time only. Once such restoration is effected, the veteran’s COE will indicate the one-time restoration. It will also advise that any future restoration will require disposal of all property obtained with a VA loan.”

Borrowers who are hoping to reuse their VA loan benefits must do so in accordance with the above policies and make sure they are proactive about applying for restoration. There’s only so much the borrower can do in regards to speeding up the process, but the things you can

There Is No Time Like the Present

I had a great neighbor, an older gentleman, who always seemed to get things done in record time. While I was still trying to decide what to do, he was already doing. We often talked over the fence and one of his favorite sayings was, “there is no time like the present.

In the spirit of taking wise action now, here are five good reasons why you should take advantage of your VA home mortgage loan entitlement:

  • Reason #1: Veterans, active duty and certain surviving spouses are eligible for VA home loan benefits. Qualified surviving spouses may borrow up to $417,000 (more in high-cost counties) with no money down.  Surviving spouses are exempt from paying the VA funding fee.
  • Reason # 2: VA home loans can be used to purchase foreclosed and short-sale properties, often with little or no money down. VA-eligible borrowers possess an advantage over those who need up to 20% cash down to qualify for conventional loans. Work through a VA appraiser who is trained to certify value and safety. He will be able to steer you away from problem properties that are not a good investment.
  • Reason # 3: If you are currently deployed overseas, you can sign a power of attorney or (POA) designating your spouse or someone else to act in your behalf for a VA home loan. The POA grants permission for the attorney in fact to sign on behalf of the VA-eligible borrower.  The service member must give intent to obtain a VA loan through an email, letter, or other written notification. Only a spouse can satisfy the occupancy rule (move in within 60 days of closing) in a deployed serviceperson’s stead. Otherwise, the borrower serving away from home is granted an extension of up to 12 months to occupy the home.
  • Reason # 4: There are knowledgeable specialists who can help you get the facts. You should not trust a real estate as a reliable source for VA loan information.  A VA specialty lender, one whose majority product is VA-backed loans, can provide reliable VA mortgage lending facts.
  • Reason # 5: If a lender is specialized in VA home loans, then closing can often happen within 30 days. The VA-approved lender is given flexibility to decide on its own whether a borrower is a satisfactory credit risk.  Oftentimes a borrower with extenuating circumstances can close quickly.

Where do I Start?

Your quest for a VA home loan starts with a Certificate of Eligibility (COE). You are required to obtain a COE to pursue a VA mortgage loan. If you do not have this certificate, you will need to apply using VA Form 26-1880 (which requires a copy of DD-214—your Certificate of Release or Discharge from Active Duty showing character of service). Along with the COE, you will need to document your credit, savings, and employment information to apply for a VA home loan.

Why get a Military Home Loan?

Simply put, there are distinct financial advantages to do so. A  VA Home Loan allows qualified buyers the opportunity to purchase a home with no down payment. There are also no monthly mortgage insurance premiums to pay, limitations on buyer’s closing costs, and an appraisal that informs the buyer of the property value. For most loans on new houses, construction is inspected at appropriate stages and a 1-year warranty is required from the builder. VA also performs personal loan servicing and offers financial counseling to help veterans having temporary financial difficulties.

I’ve Already Used My VA Loan Eligibility

You can have previously-used entitlement “restored” one time only to purchase another home with a VA loan if the borrower has paid off the prior loan but still owns the property, and wants to use his entitlement. This often occurs with active duty borrowers who transfer to a new station but want to keep their existing home for retirement. However if the prior loan has been paid off, AND the property is no longer owned, they can have their entitlement restored as many times as they want.  They can re-use their VA eligibility for every home purchase from the first to the last.

A veteran’s maximum entitlement is $89,912, and lenders will generally loan up to four times your available entitlement without a down payment, provided your income and credit qualifications are fine, and the property appraises for the asking price.

Remember, there is no time like the present!

Get Started With Your VA Loan Today

VA Loans vs. Conventional Loans – Which is better?

What should you choose?  VA or Conventional?

At some point Veterans will come to a dilemma when deciding what type of loan to use when buying a home.  This is a very valid question or concern as both have their place in the home buying process.  Having worked with Veterans for the past 7 years I can shed some light on this subject.  First let me start by saying that owning your own home is still one of the best financial decisions an individual can make if its done right.  What I mean by that is simply don’t bite off more than you can chew.  Once you sign on that dotted line you are now responsible for making payments for the next 15 to 30 yrs.  BE SMART ABOUT IT.  OK, lets analyze the VA loan and Conventional loan.

VA loans allow NO MONEY DOWN 100% financing

VA loans  allow for a Veteran to borrow 100% of the purchase price.  This now is one of the only loan programs that allow for 100% financing.  Unlike Conventional loans, you don’t have to pay any mortgage insurance premium (MIP) on Veteran Home Loans.  MIP is a separate insurance that covers the lender in case of loan default.  The amount of MIP is paid on a monthly basis and is completely risk based and can be very expensive.  The reason why a Veteran does not have to pay this is simple.  The Department of Veteran Affairs is guaranteeing a portion of the loan to the lender.  This is what is commonly known as your VA entitlement.  For the Dept of Veteran Affairs to guarantee a VA loan to the lender there is a fee assessed by the VA.  This is called a VA Funding Fee (VAFF).  The amount of this fee is usually 2.15% of the loan amount and it CAN BE financed into the loan.  This fee can be decreased if the Veteran puts money down and will also be waived is the Veteran is receiving 10% or more VA disability.  In this day and age, who has $20,000 just laying around to put down on home.  This is just my opinion, but if you have that much money saved its better left in an interest bearing account.  Besides, all the interest on home loans is tax deductible so on that $20k you will will gain interest and be able to deduct more interest on your home.

Do I need to have great credit?

Credit Qualifications on VA loans are much different than conventional loans.  With VA loans its based on timely payments within the last 12 months whereas Conventional loans are score driven.  A Veteran who has a credit score of 620 can get them same rate as someone with an 800 credit score.

How much money do I have to make?

There is an additional step with VA loans.  VA is not so concerned about Debt to Income (DTI) but rather Residual Income (RI).  The Department of Veteran Affairs has established a calculation based on family size, loan size and location and takes into account net income (after taxes).  Conventional calculates DTI on gross income (before taxes).

These are the main differences between VA loans and Conventional Loans.  If a Veteran has served his country and helped the cause of Freedom and is given the ability to use a VA loan, there is no reason why he/she should not use it.  I’ve done both VA and Conventional loans.  VA LOANS provide lower monthly payments.  This industry is changing so much. It isn’t what it used to be but the VA loan has remained constant.  Good luck and happy house hunting.

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*Annual savings calculator based on 2015 monthly average savings extrapolated year-to-date.