Veterans and active-duty service members have access to a range of benefits through the U.S. Department of Veterans Affairs (VA), including the VA home loan program.
One of the key components of the VA home loan program is VA loan entitlement, a term that often causes confusion among borrowers. Understanding VA loan entitlement is crucial for veterans and service members who want to take full advantage of their VA loan benefits.
In this article, we’ll explain what VA loan entitlement is, how it works, and how you can use it to buy or refinance a home.
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Understanding VA Loan Entitlement
VA loan entitlement is the specific amount that the VA guarantees to a lender if a borrower defaults on their loan. Essentially, it’s the backing the VA provides to lenders, which enables them to offer favorable loan terms to veterans and service members without requiring a down payment or private mortgage insurance (PMI).
The VA loan entitlement is not a cap on how much you can borrow. Instead, it’s a guarantee amount that helps secure the loan, protecting the lender in case the borrower is unable to repay.
Types of VA Loan Entitlement
There are two main types of VA loan entitlement:
- Basic Entitlement
- Bonus or Second-Tier Entitlement
Let’s break down each type to understand how they function within the VA loan program.
1. Basic Entitlement
Basic entitlement is the initial portion of the VA guarantee and is often referred to as the first-tier entitlement. The VA provides a basic entitlement of $36,000 for loans up to $144,000. For loans above that amount, you are typically looking at second-tier entitlement, which allows for higher loan limits.
Basic entitlement works in the following ways:
- For a loan amount of up to $144,000, the VA guarantees 25% of the loan amount, up to a maximum of $36,000.
- The basic entitlement can be reused, as long as the previous loan has been repaid in full and the home has been sold or if the VA restores entitlement.
2. Bonus or Second-Tier Entitlement
The second-tier or bonus entitlement is additional backing that comes into play for loans above $144,000. As home prices have risen significantly in many areas, this entitlement allows veterans to purchase more expensive homes while still benefiting from the VA’s loan guarantee.
Here’s how bonus entitlement works:
- For loans over $144,000, the VA guarantees 25% of the county loan limit (as set by the Federal Housing Finance Agency).
- In most counties, the loan limit is $548,250 as of 2024, which means the VA can back 25% of this amount, allowing for larger loan amounts with no down payment.
- In high-cost counties, the loan limits can go up to $822,375 or more, allowing for even greater loan amounts under the VA program.
Bonus entitlement essentially enables veterans to purchase higher-value homes without worrying about a down payment, as long as their entitlement is intact and they qualify with their lender.
How VA Loan Entitlement Works in Practice
Understanding how VA loan entitlement works in practice can be a bit confusing. The key point to remember is that VA entitlement is not a cap on how much you can borrow, but rather a guarantee amount. Lenders will typically lend up to four times the amount of your entitlement, assuming that you have full entitlement.
Let’s break down how this works:
- If you have full entitlement (basic + bonus entitlement), you can purchase a home up to the county loan limit (e.g., $548,250 in most counties) without needing a down payment.
- For loans above the county loan limit, you may need to make a down payment to cover the difference between the loan amount and your entitlement.
For example:
- If the county loan limit is $548,250, your entitlement covers 25% of that amount, or $137,062. If you want to purchase a home worth more than $548,250, you’ll need to make a down payment equal to 25% of the amount exceeding the loan limit.
| Loan Amount | County Loan Limit | Entitlement Coverage (25%) | Down Payment Required |
|---|---|---|---|
| $500,000 | $548,250 | $125,000 | $0 |
| $600,000 | $548,250 | $137,062 | $12,000 |
| $700,000 | $548,250 | $137,062 | $37,062 |
In this example, for a home valued at $700,000, you would need a down payment of $37,062 to cover the difference between the county loan limit and the higher home price.
VA Loan Limits
VA loan limits apply when you don’t have full entitlement available, such as if you still own a home that was financed with a VA loan or if you’ve had a previous VA loan that hasn’t been fully repaid. In such cases, loan limits come into play, and the amount of entitlement you have remaining will determine how much you can borrow without a down payment.
However, if you have full entitlement (either because you’ve never used your VA loan benefits or you’ve restored your entitlement by selling the previous home or paying off the loan), there are no loan limits.
| Scenario | Entitlement Status | Loan Limits |
|---|---|---|
| First-time VA loan borrower | Full entitlement | No limits |
| Used VA loan, home sold | Full entitlement | No limits |
| Used VA loan, still own home | Partial entitlement | Loan limits apply |
How to Calculate Your Remaining VA Loan Entitlement
If you’ve already used your VA loan benefit to purchase a home, you might be wondering how much remaining entitlement you have. Your remaining entitlement will be based on the loan amount of your previous VA loan and whether you’ve fully repaid it or still owe on it.
Here’s how to calculate your remaining entitlement:
- Determine the basic entitlement used: If your previous loan was under $144,000, your basic entitlement was likely used, and the amount will be subtracted from your full entitlement.
- Check your second-tier entitlement: For loans over $144,000, your second-tier entitlement will come into play. You’ll still have some entitlement remaining as long as you haven’t defaulted or used your entire entitlement amount.
- Verify your county loan limit: Check the county loan limits where you want to purchase the second home. This will help determine the amount you can borrow with your remaining entitlement.
If you’re unsure about your remaining entitlement, you can request a Certificate of Eligibility (COE) from the VA or ask your lender to assist you.
Reusing VA Loan Entitlement
The VA loan program allows veterans and service members to reuse their loan entitlement, even if they’ve already purchased a home with a VA loan. There are a few different ways to restore and reuse your entitlement:
-
Sell the Home and Repay the Loan: If you sell the home that was financed with a VA loan and pay off the loan in full, your entitlement will be restored and you’ll have access to your full entitlement again.
-
One-Time Restoration: Even if you don’t sell the home but have paid off the loan, you can apply for one-time restoration of your entitlement. This allows you to reuse your VA loan benefits to purchase another home.
-
Simultaneous Use of Entitlement: In some cases, you can have two VA loans at the same time, such as when relocating due to military orders. However, your remaining entitlement will determine how much you can borrow for the second home.
Situations Where Entitlement Restoration Might Be Needed
Here are a few scenarios where you might need to restore your entitlement:
-
You sold your home and want to buy another: If you sold your previous home and paid off the VA loan in full, you’ll need to apply for restoration of your entitlement before purchasing another home with a VA loan.
-
You refinanced into a conventional loan: If you refinance your VA loan into a conventional mortgage, you can restore your entitlement, even though you still own the home.
-
You paid off the loan but kept the home: If you’ve paid off your VA loan but kept the home, you can request a one-time restoration of your entitlement to use the benefit again.
Frequently Asked Questions (FAQs)
1. Can I use my VA loan entitlement more than once?
Yes, you can use your VA loan entitlement more than once. As long as you restore your entitlement, either by selling the home and repaying the loan or through one-time restoration, you can reuse your entitlement for future home purchases.
2. How much is the basic VA loan entitlement?
The basic VA loan entitlement is $36,000, which guarantees loans up to $144,000. For loans above that amount, the second-tier entitlement comes into play, allowing for larger loans with no down payment.
3. What happens if I default on my VA loan?
If you default on a VA loan, you may lose some or all of your VA loan entitlement. This can limit your ability to obtain another VA loan until the default is resolved or the amount is repaid.
4. How can I restore my VA loan entitlement?
You can restore your VA loan entitlement by selling the home and paying off the loan in full. Additionally, you can request one-time restoration if you’ve paid off the loan but kept the home.
5. Can I use my VA loan to buy a second home?
Yes, you can use your remaining entitlement to buy a second home, as long as the loan amount does not exceed your remaining entitlement and you meet the VA’s occupancy requirements.
6. Is there a limit to how many times I can use my VA loan entitlement?
There is no limit to how many times you can use your VA loan entitlement, as long as you restore your entitlement after each use.
The Bottom Line
VA loan entitlement is one of the most valuable benefits available to veterans and service members, allowing them to purchase homes with no down payment and competitive loan terms.
Whether you’re a first-time homebuyer or looking to purchase another property, understanding how VA loan entitlement works is essential for maximizing your benefit.
By knowing how to calculate your remaining entitlement and how to restore it, you can make informed decisions and take full advantage of this powerful financial tool.
