You bought a home with your VA loan benefits. Now what? Are they used up forever? Can you reuse them? We help you understand the way your VA loan benefits work below.
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Basic Entitlement
Eligible veterans, which are those with an honorable discharge and adequate time served in the military, are eligible to receive basic entitlement for a home loan. This provides borrowers with the ability to secure a loan amount up to $144,000.
The VA guarantees 25% of this amount, which means $36,000. With a loan amount below $144,000, you would not need a down payment. If you were to default, the lender would receive 25% of the amount defaulted, which would make up for the lack of down payment made.
What if your loan is more than $144,000 though? You then tap into your bonus entitlement.
Bonus Entitlement
Your bonus entitlement is any loan amount that you need beyond $144,000 and up to $453,100. Again, the VA will guarantee 25% of this amount up to a total of $113,275. This allows you more flexibility when shopping for a home, as it’s hard to find a home for $144,000 in many counties.
Using Your Entitlement
Once you use your entitlement, whether basic or bonus, you cannot reuse it. That entitlement remains tied to the home that you bought and the loan you used to buy it. For example, if you bought a home for $200,000, you would use up $50,000 of your $113,275 total entitlement.
That does mean you’d have $63,275 left. But, the VA loan is only for an owner-occupied property. You can’t use it for investment properties or even second homes. The VA provides their guarantee to help you afford a home for you and your family to live and that’s it.
But, there’s an exception. Let’s say you are still active in the military and you were relocated. Your new station is more than 50 miles away from your current home. You want to buy another home near this location, but keep your current home because you know you’ll move back when you are done with your service. The VA might grant a one-time exception that allows you to use your remaining entitlement and keep your current home.
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Without that exception, you would be required to sell your current home, pay off the VA loan, and then apply for reinstatement of your benefits. That’s generally how it’s done unless you apply for the one-time exception. The exception doesn’t pertain only to military relocations, either. You can use a variety of other reasons to buy another home and keep this existing home including:
- You outgrew your home due to an expanding family
- Your civilian job relocated you more than 50 miles away
You must prove to the VA that moving is to your benefit, and that you can afford both loans for this one-time exception.
Subsequent Reuse of Your Entitlement
If you use your one-time exception or you don’t qualify for the exception, you must sell your home and pay off the loan. Keep in mind, we said ‘and’ because you can’t just pay off your mortgage and reinstate your entitlement. The VA requires proof that you paid the loan off and sold the home. Your Settlement Statement and loan payoff will usually suffice as proof.
You can reuse your VA entitlement as many times as you want as long as you continue to pay off the loan and sell the home. The VA doesn’t have any rules regarding how many times you can use it. This can be helpful for borrowers that move frequently and don’t have any interest in keeping their current home, renting it out to others in the meantime.
Reusing your VA benefits does require you to petition the VA for reinstatement of the benefits. You can’t just assume you can reuse your benefits. The VA won’t reinstate them without a petition to do so. Keep in mind, every time you reuse your benefits, you pay the VA funding fee of 2.15% for every new loan unless you refinance your loan with the VA IRRRL program.
