By Chris Birk, Director of Education, Veterans United Home Loans.
Rumors of red tape and strict guidelines have long surrounded the VA home loan program. But as awareness grows, more Veteran homebuyers are discovering how easy it is to use and reuse this lifetime benefit.
For military homebuyers facing frequent relocation, the VA home loan provides surprising flexibility.
Entitlement Basics
Eligible Veterans have two layers of VA loan entitlement, which is a set dollar amount the VA guarantees to pay back if you default. Basic loan entitlement is $36,000, but there’s a bonus or “second tier” of entitlement worth $70,025 in most parts of the country. The VA loan provides lenders a 25% guarantee, so that combined $106,025 in entitlement means qualified buyers can borrow up to $424,100 without making a down payment. Buyers in high-cost areas may be able to tap into even more purchasing power.
Retain a Home and Buy Again
Second-tier entitlement makes it possible for qualified buyers to hold two or more active VA home loans at the same time. This scenario is common among active duty homeowners facing temporary relocation or PCS. It allows them to keep their first home and buy a primary residence at their new duty station. The biggest hurdle here is often affordability, since you'd be on the hook for both monthly mortgage payments. Some lenders can offset the first mortgage with rental income if you find a reliable tenant.
Sell a Home and Reuse the VA Loan
VA homeowners who sell their home, repay the loan, and dispose of the property can seek to restore their full VA loan entitlement every time. Once your entitlement is restored, you're freed up to buy again; you’ll just need to fill out some paperwork to get the process started. It’s best to leave a cushion between a sale and a new purchase, but an experienced lender can help ensure a smooth process if you’re on a tight schedule. In some cases, VA buyers are even able to arrange for a simultaneous closing, signing off on the sale of one home the same day they purchase another.
Default and Foreclosure
In the unfortunate event of default or foreclosure on a VA home loan, things can get a little trickier. Waiting periods and post-foreclosure lending guidelines are obstacles. But they don't mean the end of the road in every scenario—even if a part of your entitlement is compromised.
VA homeowners who default lose whatever entitlement was utilized to secure the loan, but they may be able to purchase again with another zero down VA loan, depending in part on how much entitlement is left. Specialized VA lenders know the ins and outs of entitlement.
The VA loan program has made homeownership accessible to millions of Veterans and military families. Zero down options coupled with freedom from private mortgage insurance and prepayment penalties make a VA loan hard to beat. Finding a lender you can trust is crucial when it comes to maximizing your VA loan benefit.
