VA Loan 101 - A Simple Guide to Obtaining Your COE and Restoring Entitlement

Before getting a VA Loan, you must first get a Certificate of Eligibility (COE). This process, for most, is quick and easy and shouldn’t stop anyone from pursuing a VA Loan. Plainly put, most COEs can be obtained by lenders in a matter of minutes using an online system called Automated Certificates of Eligibility, or ACE. This system is for use by lenders in order to assist potential VA Home Loan borrowers in obtaining their COEs. All that is required from the veteran or active duty person is a name and social security number.

As long as a service person’s name and number are in the system, the ACE route for obtaining a COE is fast and easy. VA-approved lenders simply enter the two required bits of information (Name and SSN) into the system and the rest is automatic. Borrowers need not fill out any paperwork, and there is no searching through old files to locate military forms.

Most COEs can be obtained through ACE. A typical successful ACE candidate might look like this:

· First-timeVA Home Loan borrower

· Honorably discharged after 1980

· At least 2 years served on active duty

 

Of all COEs issued nationwide, 98 percent of them are through the ACE system.  Improvements are being made so that the ACE system will allow for lenders to code restorations of entitlement. Once this is done, lenders will be able to obtain COEs for subsequent VA Home Loan users, too. 

 

Lenders can print COEs obtained through the ACE system instantly on regular white paper. Each COE obtained online and printed by a lender will have a unique authorization number that shows its authenticity. 

 

 

The ACE online system can be a very helpful tool for VA-approved in obtaining a COE for VA-eligible borrowers; however, it does not work for everybody.  The ACE system cannot certify entitlements for:

 

·    Service persons in the Reserves/National Guard

·    Those with a history of VA Loan foreclosure

·    Military persons with insufficient service time/discharge types

·    Un-remarried surviving spouses

Just because the ACE system is unable to certify someone doesn’t mean he or she is ineligible. Generally, those who are eligible for VA Home Loans include honorably discharged veterans and active duty personnel who have served:

· 2 years on active duty, or

· 6 years in the Reserve/National Guard, or

· 90 days of wartime duty called up under U.S.C. Title 10, or

· 181 days of peacetime duty called up under U.S.C. Title 10

Certain other people who might be eligible to receive VA Home Loan entitlements include:

· POWs held in captivity for 90 days or more

· Un-remarried surviving spouses

By all means, obtaining a COE should not be an intimidating process. Rather, the process should be quick and easy for most borrowers. And, the ACE online system is making it easier for many borrowers to get on the road to using the VA Loan Guaranty Program.

 

Once you obtain your COE, not many know that the VA loan benefit can be used again and again as long as you have enough entitlement. Entitlement is the amount the VA will guarantee for each veteran.  Each veteran’s entitlement can vary depending on county and past usage. Restoration of entitlement is what typically happens after veterans or active duty personnel fulfill their loan commitments.  And, restored entitlement can be used again.

 

There are several different ways to restore entitlement.  One way is by paying off the loan and disposing of the property that was financed with the VA loan.  This could mean selling the home and paying the VA Loan with proceeds from the sale. 

In some cases, entitlement can be restored even if a home financed with a VA loan is not sold.  Each veteran is allowed a one-time restoration of entitlement on a property retained. One time and one time only, a veteran can keep property financed with a VA loan after the loan is paid in full and entitlement restored. This could happen if the borrower lives in the home long enough to achieve satisfaction of mortgage through monthly payments over time.  Or, the borrower may make extra payments toward principal to shorten the duration of the military home loan. Either way, full payment can lead to restoration of entitlement even if a borrower still owns the home.

Yet another way for restoration of entitlement to occur is through replacement.  When a VA-eligible borrower buys another VA-eligible borrower’s home and assumes the VA mortgage, the buyer can substitute his or her entitlement for the seller’s.  Restoration of entitlement following a VA loan assumption can happen if these three criteria are met:

1.   The buyer must occupy the property and complete VA Form 26-8106

2.   The buyer must have enough entitlement to replace the seller’s

3.   The buyer and the seller must both prove eligibility

When these three criteria are met, release of liability (ROL) is obtained and the seller’s entitlement can be restored and used again.

 

Certain circumstances can prevent restoration of entitlement. For instance, when a VA Loan is assumed and the seller’s entitlement is not replaced by the buyer’s, then the seller’s entitlement is not restored.  And, when an assumed VA loan goes into default, the VA will likely have to pay claim to the lender.  The entitlement used by the original borrower will not be restored until VA has been reimbursed for the loss. 

Assumed or not, a VA loan in default that leads to deed in lieu of foreclosure, will likely not provide restoration of entitlement.  Even though deed is offered instead of foreclosure, the VA will still have to pay a partial claim to the lender.  This is still considered a loss of the VA’s guaranty for that borrower.  The borrower will need to repay the loss in full before entitlement may not be restored.

The bottom line is restoration of entitlement is possible when a VA mortgage or a VA loss is paid in full.

 

Veterans should understand that restoration of entitlement doesn’t happen automatically.  Once a VA loan or loss has been paid in full through any of the various means described, the veteran must complete VA Form 26-1880 to notify the Department of his or her desire to restore entitlement. As long as he or she provides proof of payment in full, and in some cases disposal of property, restoration of entitlement is typically given.  

Since each veteran’s situation is different, talking to a VA loan specialist can be helpful in answering questions regarding restoration of entitlement.