VA Loan Entitlement: Everything You Need To Know

VA Loan Entitlement:

Grasping the intricacies of your VA loan entitlement and its significance in the home purchasing journey can be complex. Yet, by dedicating some time to structured research, you will unravel essential details such as your eligibility for a VA loan and the methods to calculate this figure.

As you delve into the mortgage market, recognizing the loan amount you’re eligible to borrow is crucial. For those qualified for a VA loan, your certificate of eligibility (COE) will outline your entitlement size.

This guide aims to demystify the foundational aspects of VA loan entitlements, including the various categories and the process for determining your eligible VA entitlement amount.

What Is VA Entitlement?

In essence, VA entitlement represents the maximum sum the Department of Veterans Affairs (VA) guarantees for a borrower’s VA loan. It signifies the highest amount the VA commits to repaying your lender in the event you fail to repay your loan.

A notable advantage of securing a VA loan, among other non-traditional loans, is the elimination of a down payment requirement. The entitlement amount specifies the maximum loan value you can obtain without needing a down payment.

Full Entitlement

You’re considered to have full entitlement if you’ve never utilized a VA loan before, or if you’ve settled a previous VA loan and disposed of the associated property.

With full entitlement, your entire entitlement sum is accessible for purchasing a property, imposing no cap on the loan amount for a down payment-free borrowing. The VA pledges to guarantee up to 25% of the loan value, regardless of whether it surpasses the conforming loan limit in your or the property’s county.

Nevertheless, this doesn’t imply an unrestricted borrowing capacity; the loan amount you qualify for will be determined by the lender based on your income, credit score, debt, and credit history.

Reduced Entitlement

Under reduced entitlement, theoretically, there is no ceiling on the loan amount for home acquisition. However, should your loan surpass your total entitlement (basic plus additional entitlement), a down payment becomes necessary.

Partial entitlement might apply if you’re repaying a VA loan, have defaulted on one previously, or if you’ve repaid your loan but still own the property bought with that loan without having applied for a one-time entitlement restoration.

When entitlement is reduced, the VA’s guarantee is limited to up to 25% of the conforming loan limit in your county, deducting any portion of your entitlement already utilized.

Understanding COE and VA Entitlement Codes

A Certificate of Eligibility (COE) verifies that individuals such as active-duty service members, veterans, their surviving spouses, or those who have served in the National Guard or Army Reserve meet the necessary military service criteria for a VA home loan. Additionally, the COE details your entitlement amount.

An entitlement code will be present on your COE, generally reflecting the era of service—whether during war or peace—and how you qualified for your entitlement.

If you lack a COE, your lender can usually acquire one for you when you initiate the mortgage application process. Alternatively, you can request your COE online via the VA’s eBenefits portal.

Varieties of VA Loan Entitlement

Your COE indicates the extent of your “basic” entitlement, but you’re likely to have an “additional” entitlement as well, often referred to as bonus or Tier 2 entitlement.

While the concepts of basic and bonus entitlement might seem complicated, they’re straightforward once broken down.

Basic VA Loan Entitlement

Should you possess full entitlement, your COE will state, “This veteran’s basic entitlement is $36,000.”

It’s crucial to understand that this $36,000 figure does not cap the amount you can borrow nor the sum the VA guarantees. For loans under $144,000, the VA assures 25% of the loan up to $36,000.

This assurance doesn’t confine you to borrowing only up to $144,000. After your basic entitlement is utilized, your bonus entitlement becomes applicable.

Bonus VA Loan Entitlement

For loans exceeding $144,000, bonus entitlement comes into play. With full entitlement, the VA guarantees a quarter of your loan amount.

A $0 entitlement on your COE doesn’t render you ineligible for a loan; it merely indicates that your $36,000 basic entitlement is fully leveraged. However, you might still have bonus entitlement accessible.

Calculating your available bonus entitlement after employing the full basic entitlement involves some calculations. Here’s an overview of how this calculation is performed.

Determining Your VA Entitlement Amount

For those with full entitlement, the concept of a loan limit is non-existent. This means you’re not constrained by calculations regarding your entitlement amount. Essentially, the amount you can borrow is only limited by what a lender is prepared to offer you, without the requirement for a down payment.

However, if your entitlement is partially used and you’re curious about the remaining balance, it’s important to understand how much of your entitlement is currently allocated.

Keep in mind that the VA secures up to a quarter of your loan. To calculate the portion of your entitlement already utilized, you would multiply your current loan value by 25%.

VA Loan Entitlement Calculation

Here’s the formula for working out your used entitlement:

Current Loan Value × 0.25 = Used Entitlement

It’s also necessary to know the conforming loan limit for your county. As of 2024, the baseline limit for a single-unit property under a VA loan is $766,550. This limit can rise to as much as $1,149,825 in areas with higher living costs, such as major metropolitan regions or for properties with multiple units.

Understanding Maximum Entitlement on a VA Loan

Your maximum entitlement corresponds to 25% of your county’s conforming loan limit.

Conforming Loan Limit for Your County × 0.25 = Maximum Entitlement

For those with reduced entitlement, reaching the maximum borrowing amount without a down payment might not be feasible. To figure out your available entitlement, subtract the entitlement you’ve already utilized from your maximum entitlement.

Maximum Entitlement – Used Entitlement = Available Entitlement

This available entitlement represents the highest amount the VA will secure on your behalf. Given that the VA guarantees a quarter of the loan, multiplying your available entitlement by four provides the highest loan amount you can secure without needing a down payment.

Available Entitlement × 4 = Highest Possible Loan Amount Without Down Payment

Example of Utilizing VA Loan Entitlement

Imagine you’ve previously purchased a home with a $300,000 VA loan and are now facing a permanent change of station. If selling your current home and restoring your full VA loan entitlement isn’t an option, you’ll be purchasing your next home using the entitlement you have left.

Step 1: Calculate Used Entitlement

Your used entitlement equals 25% of your previous loan amount, which in this case amounts to $75,000.

$300,000 × 0.25 = $75,000

Step 2: Determine Maximum VA Guarantee

With the conforming loan limit at your new location set at $766,550, the VA’s maximum guarantee would be $191,637.50.

$766,550 × 0.25 = $191,637.50

Step 3: Calculate Remaining Entitlement

Subtract the entitlement you’ve already used from the maximum guarantee to find your remaining entitlement, which is $116,637.50 in this scenario.

$191,637.50 – $75,000 = $116,637.50

Step 4: Determine Potential Loan Amount Without Down Payment

To discover the highest loan amount you could secure without a down payment, multiply your remaining entitlement by 4.

$116,637.50 × 4 = $466,550

This calculation suggests you could obtain a loan up to $466,550 without needing a down payment.

For a larger loan, a down payment might be necessary to bridge the gap between your desired loan amount and what your entitlement covers.

If you aim for a $500,000 loan, the shortfall not covered by VA’s guarantee would be $33,450 ($500,000 – $466,550). Lenders typically seek a guarantee of at least 25% of the loan amount, requiring you to cover the difference for reduced entitlement.

Given a $500,000 property, the maximum entitlement would be $125,000.

Maximum Entitlement: $500,000 × 0.25 = $125,000

With a maximum entitlement of $116,637.50 from the VA, a down payment of $8,362.50 would likely be needed.

Down Payment Required: $125,000 – $116,637.50 = $8,362.50

Restoring Your VA Home Loan Entitlement

To restore your entitlement fully, you need to repay the loan in full and sell the property associated with that loan. A one-time restoration is possible if you’ve repaid the loan but haven’t sold the property. This usually occurs upon reaching the loan’s maturity or through refinancing to a different loan type, such as a conventional mortgage.

Without full entitlement or eligibility for one-time restoration, the formulas provided can help determine your remaining entitlement, allowing reuse once entitlement has been restored by repaying the loan and selling the property.

VA Loan Entitlement FAQs

Below, you’ll find responses to several common inquiries regarding VA loan entitlement.

What is the distinction between entitlement and guaranty?

While the VA does not directly issue VA loans, it does play a crucial role in the process. Private lenders are responsible for issuing the loans, and in turn, the VA provides a guaranty on a portion of each loan. This guaranty is often referred to as the loan’s entitlement.

Your entitlement represents the amount that the VA commits to guarantee on your loan. Should you fail to meet your loan obligations, the VA promises to compensate the lender up to the guaranteed amount.

Does receiving VA loan entitlement mean I get cash?

No, obtaining a VA loan entitlement does not equate to receiving cash directly. As a government-backed loan, the VA loan’s purpose is strictly for financing your home purchase, not for other financial needs or wants.

Can I use my VA loan entitlement more than once?

Yes, your VA loan entitlement is a benefit that can be utilized multiple times throughout your life, provided you qualify. To take advantage of a mortgage with no down payment, it’s essential that you have sufficient basic, bonus, or combined entitlement to cover the loan.

Understanding Your Borrowing Power with VA Loan Entitlement

The amount of your VA loan entitlement indicates the portion of your loan that the VA will secure.

Regardless of the entitlement available to you, the ultimate loan amount you can secure is determined by what a lender deems you eligible to borrow. It’s important to ensure that any loan you consider fits comfortably within your financial plan.

When you’re ready to embark on the home buying journey, applying for a mortgage online, such as with Elevation Mortgage, is a convenient option.