But what happens when a veteran and his or her spouse divorce but still have a VA loan? This is where good information proves immensely helpful.
A Veterans Administration loan is more commonly known as a VA loan. It is provided as a benefit to veterans of the United States Armed Forces.
Veterans and their spouses may take out a VA loan but the veteran must be listed first on the loan and must be listed first on the title to the home. Only their respective spouse may be on the loan or share title with the veteran. No parent, significant other, fiancée, or anyone other than the spouse is eligible.
Divorce – Who Keeps the VA Loan?
In the event that a veteran and his or her spouse dissolve their marriage, the party awarded the home is typically also awarded the debt associated with it. Sometimes the divorce decree requires that person to refinance the loan and title to the home into his or her own name. If the veteran is the person awarded the home, he or she can obtain a VA refinance through his or her lender. A copy of the decree must be provided so that the ex-spouse can be removed from the title. The ex-spouse will have a document or two that requires signing. This differs from state-to-state.
Purchasing Another Home
One question lenders are often asked is “Can I purchase another house utilizing my VA benefit if my ex-spouse kept the house and the VA loan associated with it?” It depends on how much of your entitlement remains from the first VA loan. But the VA does allow two VA loans at the same time. This is known as second-tier entitlement. So long as the veteran’s maximum entitlement is not exceeded with the first loan, the veteran may be able to use VA financing to purchase another home.
Restoring VA Loan Entitlement
If the veteran and ex-spouse sell the marital home, pay off the VA loan, or refinance to a non-VA loan, restoration of the entitlement should happen right away. Then when he or she wants to purchase another home by re-utilizing their VA benefit, they can work with their current lender to make sure the restoration is in place so the veteran can finance their new home.