Veteran on Texas home porch feeling secure

Restore Your Full VA Loan Entitlement in Texas

Q: What is VA loan entitlement?

A lender's seasoning period is a mandatory waiting time after you purchase or refinance a property before you can access the full after-repair value (ARV) for a cash-out refinance. Most DSCR lenders require a seasoning period of 6 to 12 months. Refinancing before the seasoning period concludes typically means the lender will base the loan amount on your original purchase price plus rehab costs, which severely limits the amount of equity you can cash out. Waiting until after the period allows you to borrow against the full market value you created through your renovations.

Q: How can I restore my full VA loan entitlement after selling my home?

To justify a higher appraised value, you should provide the appraiser with a detailed and organized renovation packet. This packet removes guesswork and provides concrete evidence of the work performed. It should include: a cover letter summarizing the major upgrades, a detailed scope of work document itemizing all improvements, compelling before-and-after photos showing the property's transformation, copies of paid invoices and receipts for materials and labor, and copies of any official building permits that were issued for the work.

Q: What documents are needed to apply for an entitlement restoration?

No, LTV limits for cash-out refinances vary significantly among different DSCR lenders, as each has its own guidelines and risk tolerance. While purchase loans may reach 80% LTV, cash-out refinances are often capped at 70% or 75% LTV. The specific LTV offered to an investor is influenced by several factors, including: Credit Score (higher scores typically qualify for higher LTVs), DSCR Ratio (a stronger income-to-debt ratio may result in a better LTV offer), Property Type (a single-family home might receive a higher LTV than a multi-unit property), and Loan Amount (some lenders may offer different terms based on the size of the loan).

Q: Is it possible to have two VA loans at the same time?

Your property's monthly rental income is the foundation of a DSCR loan approval. The formula is: DSCR = Gross Rental Income / Total Monthly Housing Payment. A higher rent results in a higher DSCR. This proves to the lender that the property can comfortably support a larger loan payment, which in turn allows you to qualify for a larger loan amount and maximize your cash-out.

Q: What is the 'one-time restoration' of VA loan entitlement?

Yes, it is often possible to pay for closing costs with the proceeds from your new loan, meaning you don't need to bring cash to closing. However, these costs are not added on top of your loan limit. Instead, the closing costs are subtracted from the total cash-out funds available to you after your existing mortgage is paid off. The total loan amount, including these costs, cannot exceed the lender's maximum LTV limit based on the property's appraised value.

Q: How does a past foreclosure on a VA loan affect my ability to use the benefit again?

Investors can make several avoidable errors that reduce their available cash-out funds. The most common mistakes include: Poor Documentation (failing to provide an appraiser with a thorough renovation packet can lead to a conservative and lower valuation), Refinancing Too Soon (not waiting for the lender's seasoning period to expire is a costly mistake that forces the loan to be based on cost rather than value), Lacking a Tenant (attempting to refinance a vacant property is less favorable, as lenders prefer the security of a signed lease over estimated market rents), and Ignoring Lender Differences (accepting the first loan offer without comparing options can mean missing out on better LTV limits or shorter seasoning requirements from other lenders).

Q: Will my entitlement be restored if my VA loan is assumed by another person?

The ideal time to begin the refinance process is 30 to 45 days before your lender's seasoning period expires. This allows you to gather all necessary documentation, secure an appraisal, and complete underwriting so that you can close immediately once the seasoning requirement is met. Crucially, by this time, the property should also be 'stabilized,' which means you have a qualified tenant in place with a signed lease and have collected at least the first month's rent.

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TL;DR

This guide provides an overview of VA loan entitlement and how it can be reused. Key takeaways include:

Entitlement Restoration: Understand the process for fully restoring your VA loan entitlement after selling the property it secured. This allows you to reuse the benefit multiple times.
Required Paperwork: Learn about the specific documents, such as the Closing Disclosure and VA Form 26-1880, needed to prove the previous loan is paid off and restore your benefit.
Using Remaining Entitlement: Discover how you may be able to secure a second VA loan while your first one is still active, which is particularly useful for military members making a Permanent Change of Station (PCS).

What is VA Loan Entitlement and How Does It Work?

Your VA loan entitlement is the specific amount of money that the Department of Veterans Affairs (VA) will guarantee on a home loan from a private lender. It's not a direct loan from the VA, but rather a promise to the lender to repay a portion of the loan if you default. This guarantee is what makes lenders confident in offering eligible veterans incredible benefits, most notably the $0 down payment option.

There are two layers to your entitlement:

Basic Entitlement: This is your primary benefit, typically $36,000. On its own, this would guarantee the top 25% of a loan up to $144,000.
Bonus Entitlement (Tier 2): For loans over $144,000, your bonus entitlement kicks in. The VA guarantees 25% of the loan amount, even for higher-priced homes. For veterans with their full entitlement, the VA no longer sets a loan limit. This means if you have your full benefit available, you can purchase a home at any price without a down payment, provided you have the income and credit to qualify for the loan. (The data, information, or policy mentioned here may vary over time.)

When you use your VA loan, you are using a portion of this entitlement. For example, if you buy a home in San Antonio for $400,000, you use $100,000 of your entitlement (25% of the loan amount). This amount remains 'tied up' with the property until specific conditions are met.

How Do I Get My Entitlement Back After I Sell My Home?

This is the most straightforward path to restoring your full VA loan entitlement. Many veterans believe the VA loan is a one-time use benefit, but that's a myth. You can use it over and over again throughout your life as long as you follow the restoration process.

To have your entitlement fully restored after a sale, you must meet two fundamental conditions:

The Loan Must Be Paid in Full: The mortgage secured by the VA must be completely paid off. The sale of the property typically accomplishes this, with the proceeds covering the outstanding loan balance.
You Must Dispose of the Property: You can no longer be the owner of the home. A legal sale to another party satisfies this requirement.

A couple reviewing their home sale documents.

Once you have sold the home and the loan is paid off, you can apply for a restoration. You will need to provide your new lender with a copy of the Closing Disclosure (CD) or HUD-1 Settlement Statement from the sale. This document proves the loan was paid in full. Your lender will then submit VA Form 26-1880, 'Request for a Certificate of Eligibility (COE)', along with the supporting documents, to the VA to formally restore your benefit.

Can My Entitlement Be Restored If My Previous Loan Was Assumed?

Yes, it is possible, but only under a very specific circumstance. A VA loan assumption is when a buyer takes over the seller's existing mortgage, including its interest rate and terms. While this can be an attractive option, especially in a high-interest-rate environment, it has significant implications for your entitlement.

Your entitlement can be restored after an assumption only if the person assuming the loan is also an eligible veteran or service member who agrees to substitute their own VA entitlement for yours.

If a non-veteran assumes your VA loan, your entitlement remains tied to that property until the loan is paid off in full. You will not be able to get it back, which could limit your ability to buy another home with a $0 down payment. Before allowing someone to assume your loan, it is critical to understand if they are an eligible veteran willing to substitute their entitlement.

What is a One-Time Restoration of Entitlement?

A one-time restoration is a special exception that allows a veteran to restore their full entitlement without selling their VA-financed property. This option is available only if the original VA loan has been completely paid off.

Consider this scenario: A service member bought a home years ago with a VA loan. They have since paid it off and now keep it as a rental property. They want to buy a new primary residence using their VA loan benefit again. In this case, they can apply for a one-time restoration of their entitlement.

The 'one-time' aspect is crucial. After using this special restoration, you cannot use it again. To restore your entitlement in the future, you would need to sell any and all properties that were purchased with a VA loan.

How Does a Prior Foreclosure or Short Sale Affect My VA Loan Eligibility?

A foreclosure or short sale on a previous VA loan does not automatically disqualify you from using the benefit again. However, it does impact your entitlement.

When a VA-backed loan goes into foreclosure, the VA often has to pay a claim to the lender to cover the guaranteed portion. The amount of entitlement you used on that defaulted loan is considered lost and generally cannot be restored unless you repay the VA in full for the loss it incurred. This is very rare.

However, you can still use any remaining or bonus entitlement you have to purchase another home. For example, if you used $80,000 of entitlement on a home that was foreclosed on, you may still have a significant amount of bonus entitlement left to secure a new loan. While the VA may permit this, private lenders often have their own 'waiting periods' or 'seasoning requirements' after a major credit event like a foreclosure, typically two years, before they will approve a new mortgage. (The data, information, or policy mentioned here may vary over time.)

What Paperwork Do I Need to Apply for a Restoration of Entitlement?

Getting your documentation in order is key to a smooth restoration process. Your mortgage lender will guide you, but you should be prepared to provide the following:

VA Form 26-1880, 'Request for a Certificate of Eligibility (COE)': This is the official application form for both obtaining your initial COE and for requesting a restoration.
Proof of Military Service: If you don't already have a COE, you'll need your DD-214 (for veterans) or a statement of service (for active-duty members).
Proof the Prior Loan is Paid: The most important document is the Closing Disclosure (CD) or HUD-1 Settlement Statement from the sale of the home, which shows the mortgage was paid in full.
Proof of Property Disposal: The CD or settlement statement also serves as proof that you no longer own the property.

Your lender will typically handle the submission of these documents to the VA on your behalf.

Can I Have Two VA Loans at the Same Time in San Antonio?

Yes, it's possible for a service member or veteran to have two VA loans simultaneously, but it depends on your remaining entitlement. This situation most often occurs during a Permanent Change of Station (PCS).

For instance, a service member buys a home in San Antonio with a VA loan. A few years later, they receive PCS orders to Fort Cavazos and need to buy a new primary residence in Killeen. They decide to keep the San Antonio home and rent it out. As long as they have sufficient remaining entitlement, they can use their VA loan benefit to purchase the home in Killeen, potentially with $0 down.

The ability to do this hinges entirely on calculating your remaining, or partial, entitlement.

How Do I Calculate My Remaining Partial Entitlement for a Second Home?

Calculating your remaining entitlement can seem complex, but it's a straightforward formula. Here’s a step-by-step breakdown using a realistic example.

Homebuyer using a calculator to determine their mortgage entitlement.

Step 1: Know the Conforming Loan Limit. The VA uses the national conforming loan limit set by the FHFA to calculate bonus entitlement. For most U.S. counties in 2024, this is $766,550. (The data, information, or policy mentioned here may vary over time.)

Step 2: Calculate Your Maximum Potential Guaranty. The VA's maximum guaranty is 25% of this loan limit.

$766,550 x 0.25 = $191,637.50

Step 3: Determine How Much Entitlement You've Already Used. Let's say you have an existing VA loan of $300,000 on your home in San Antonio.

$300,000 (Loan Amount) x 0.25 = $75,000 (Entitlement Used)

Step 4: Calculate Your Remaining Entitlement. Subtract the used entitlement from your maximum potential guaranty.

$191,637.50 (Max Guaranty) - $75,000 (Used) = $116,637.50 (Remaining Entitlement)

Step 5: Determine Your $0 Down Payment Purchase Power. Your remaining entitlement represents the 25% guaranty for your next loan. To find your maximum $0 down loan amount, multiply your remaining entitlement by four.

$116,637.50 x 4 = $466,550

In this scenario, you could buy a home in Killeen for up to $466,550 with no down payment, all while keeping your first home. If the new home costs more than that, you would simply need to provide a down payment equal to 25% of the difference. If you're a veteran in Texas looking to reuse your VA loan benefits, understanding your entitlement is the first step. A knowledgeable mortgage strategist can help you navigate the paperwork and calculate your purchasing power for your next home.

Ready to see how your VA loan entitlement can work for your next home purchase? Start your application today to get a clear picture of your options.

Author Bio

David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.