When a veteran’s previous VA guaranteed loan has been terminated by foreclosure, deed in lieu of foreclosure or compromise sale (short sale), VA may have sustained a loss because of a claim payment to the lender.
Even if the veteran was released from liability on the loan and/or the debt was waived, the Government may still have suffered a loss on the loan. The law does not permit restoration of the veteran’s eligibility until the Government’s loss has been repaid in full.
Previous VA Loan Was Assumed
Entitlement is not automatically restored with an approved Assumption/Release of Liability. A veteran’s entitlement can only be restored if the assumer is also an eligible veteran who will occupy the property as a personal residence and is willing to substitute his or her available entitlement for that of the original veteran. Otherwise, the original veteran cannot have entitlement restored until the assumer has paid the loan in full.
Restoration Of Previously Used Entitlement
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 buyer 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.
Special Restoration.
In addition to the basic restoration criteria outlined above, a veteran may
obtain restoration of the entitlement used on a previous VA loan under any of the following
circumstances:
- The previous VA loan has been paid in full and the veteran has made application for a loan to be secured by the same property which secured the previous VA loan, or
- The previous 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 previous 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.
How to Apply for Restoration
The veteran must complete and send VA Form 26-1880, Request for a Certificate of Eligibility, to the appropriate Eligibility Center. If the veteran has evidence of payment in full of any previous loans (HUD-1, settlement statement, etc.), a copy should be included. Additionally, any previously issued COE’s should be included.
If the veteran is applying for restoration in order to obtain another VA loan on the same property (as described above in “Special Restoration Cases”), the veteran should include a copy of the loan application submitted to the lender along with VA Form 26-1880. Unmarried surviving spouses applying for restoration of entitlement also need to complete VA Form 26-1880 supplying the deceased veteran’s military service data and VA claims file number.
VA Loans are a specialty, I highly recommend you use a licensed loan originator experienced in all the VA rules and regulations.
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