Like the other government-backed home loans, VA loans are focused on helping borrowers purchase primary residences. The VA loan program isn’t intended to help people build an empire of rental properties or vacation homes.
That’s a big reason why VA loan entitlement is a finite amount. You can certainly buy a home with a VA loan, live in it for a while and then look to rent it out. But each time you purchase a home, a portion of your VA loan entitlement gets tied up with the property.
That, in turn, limits your $0 down buying power and ultimately how many active VA loans you can have at one time. In most cases, you would need to repay the original loan in full and dispose of the property in order to restore your full VA loan entitlement.
But there is a one-time exception that allows VA buyers to purchase a home, hold onto the property and then later regain access to their full VA loan entitlement. It’s known as the one-time restoration of entitlement.
Let’s take a closer look.
VA Loan One-Time Restoration Requirements
With the one-time restoration benefit, it’s possible to buy a home that ultimately becomes a vacation home or a rental property, and then turn around and restore your full VA loan entitlement for another purchase.
That’s a big deal, because in most places qualified buyers with full entitlement can borrow up to their county's VA loan limit before having to factor in a down payment. Without the one-time restoration, you’d either have to get rid of the home or rely solely on any remaining VA loan entitlement you have.
Buying with less than full entitlement can involve down payments and minimum loan amounts, and in some cases, it’s possible to use up all of your VA loan entitlement with that first purchase.
So being able to buy a house, keep a house, and then regain access to your full $0 down purchasing power is a huge benefit.
But there are a couple of big caveats with one-time restoration.
The first is that you can only seek the restoration if you’ve repaid the original VA loan in full. You would either need to live in the home until you repay the entire mortgage (often 15 or 30 years), or, more commonly, to refinance the VA loan into another loan type. The refinance repays the original VA loan, allowing veterans to keep the property and consider the one-time restoration as an option.
Keep in mind you don’t necessarily need to restore entitlement to purchase again in a situation like this. Would-be buyers may be fine relying solely on their remaining, second-tier entitlement.
Talk with a Veterans United loan specialist about your specific situation and what might work best.
Using One-Time Restoration
The second big caveat with one-time restoration is more about using the VA loan benefit moving forward.
Once you obtain the one-time restoration, your Certificate of Eligibility will always have a notation about it. From that point forward, if you want to restore your VA loan entitlement again, VA requires borrowers to get rid of all properties obtained with a VA loan.
That means you’d have to sell any and all homes you’ve purchased using the benefit.
One-time restoration of entitlement offers some significant benefits to VA homeowners. But there can also be some strategy involved in terms of when and how best to utilize it.
You can talk with a Veterans United loan specialist at 855-259-6455 about your particular homebuying goals to get a sense of what might work best for you.