VA Loan Entitlement: What it is & Why it is Important
One of the more perplexing aspects of the VA home loan is VA entitlement. However, VA entitlement is also important to comprehend since it affects how much you may borrow without making a down payment.
Key Takeaways
- Each VA loan normally has a 25% VA guarantee.
- The amount that the VA guarantees as a loan entitlement is in dollars.
- VA loan entitlement comes in two flavours: basic and bonus, or secondary entitlement.
- Full entitlement borrowers may borrow as much as they can afford without making a down payment.
- Borrowers with reduced entitlement may be subject to VA loan limitations and need to make a down payment.
The amount of money for which the VA will guarantee repayment to lenders in the event of a borrower default is referred to as entitlement. The VA guarantee is frequently set at 25% of the loan, giving the majority of the population a uniform entitlement amount.
VA Loan Basic Entitlement
There are two distinct entitlement categories or levels. The first is referred to as a fundamental right. A VA loan requires a minimum entitlement of $36,000.
But you undoubtedly want to know how the maths works out. Does this indicate that you can only purchase a home for $144,000 ($36,000 X 4) if the VA guarantees a quarter of each loan at $36,000? Fortunately, that isn’t what it implies, and here is where the next kind of entitlement comes into play.
VA Loan Bonus Entitlement
Basic entitlement ends where bonus entitlement begins. For instance, if you spend $700,000 on a property, you’ll exhaust $175,000 of your VA loan entitlement (700,000 / 4). Since $36,000 of the $175,000 is considered basic entitlement, the remaining $139,000 is considered bonus entitlement.
For first-time homebuyers, the price amounts might not signify much, but individuals who buy homes later might need to pay more attention.
Compare top VA Lenders for $0 Down Today
Get StartedVA Loan Limits and Entitlement
Recent law allows full entitlement VA borrowers to borrow as much as they can afford without making a down payment, therefore making VA loan limitations irrelevant.
However, VA Loan restrictions come into play and you could require a down payment if you have lowered entitlement, which is often caused by one or more active VA loans.
In either scenario, VA loan limitations only apply to the amount you can borrow without making a down payment. Let’s say you are compelled to bring money to the table since you do not have enough entitlement. In that situation, the required down payment is ordinarily 25% of the price difference between what is being offered and what you are eligible for.
The maximum VA loan amount in most of the United States is $726,200; in high-cost areas, it can reach $1,089,300. Accordingly, the majority of Veterans are entitled to $181,550 ($726,200 / 4).
You will need to contribute $53,200 if you pay $700,000 for the identical house in the scenario above and are presently utilising $40,000 of your VA entitlement.
- $181,550 minus $40,000 equals $141,550 in unclaimed benefits.
- Maximum purchase price without a down payment: $566,200 ($141,550 remaining entitlement multiplied by 4—the VA guarantee).
- Difference between example property price ($700,000) and the highest price possible without a down payment ($566,200) is $133,800.
- A down payment of $33,450 is needed, or $133,800 times.25.
It’s a lot of math, but fortunately, your lender can run all these calculations for you.
Can I have two VA loans at the same time?
Even though it’s unusual, there are times when you might be eligible to apply for two VA loans at once. When a homeowner must move because of military duty but wishes to maintain their existing property to rent out, this is the normal scenario.
Can I restore my entitlement?
If the following criteria are satisfied after you have spent all or part of your entitlement, you may receive that entitlement back to buy another home:
- You either sell the property and pay off the loan completely,
- A qualifying Veteran agrees to take the unpaid amount and use their VA entitlement in place of yours.
- You make use of the VA’s one-time entitlement restoration. You have paid off the VA loan but have chosen to maintain the property in this one-time usage.
Restoration of entitlement just once is not a given. You must submit a completed copy of VA Form 26-1880 to any VA regional office or centre in order to apply for it.
Restoring VA Entitlement after Foreclosure
It is possible to get a VA loan with your remaining entitlement following a foreclosure, but you usually cannot recover entitlement that was lost as a result of a foreclosure without paying off the loan in full.
Check your eligibility with today's top lenders
Compare LendersDoes VA loan entitlement expire?
No, the right to a VA loan never expires. The only way to lose your eligibility for VA loans is to default on earlier VA loans.
Does VA loan entitlement provide cash to the Veteran?
The monetary amounts mentioned above solely refer to the sum that the VA will guarantee against loss.
If both spouses are eligible, can they acquire a property jointly to increase the guaranty amount?
They can use VA loans to jointly buy property, but they are only entitled to the county’s maximum guarantee. Additionally, VA loans have no limit loan size.
Can a Veteran and non-Veteran obtain a VA loan together?
If they are not married, just the Veteran’s part of the loan is used as the basis for the guaranty. The non-Veteran’s portion of the loan cannot be covered by the guarantor.