For veterans and active-duty service members, the VA entitlement is a critical component of the VA loan program. It determines the maximum loan amount that can be guaranteed by the Department of Veterans Affairs and plays a crucial role in accessing the favorable loan terms and conditions the VA loan offers. If you are a veteran or a service member considering a VA loan, understanding your VA entitlement is essential. In this post, we will explore what you need to know about your VA entitlement and how it impacts your VA loan eligibility and benefits.
What is VA Entitlement?
VA entitlement, also known as your VA loan eligibility, is the amount the Department of Veterans Affairs guarantees on a VA loan. It serves as a safeguard for lenders, ensuring that a portion of the loan will be repaid in the event the borrower defaults.
Types of VA Entitlement
There are two types of VA entitlement that determine your maximum loan amount:
- Basic Entitlement: The basic entitlement is the initial amount of entitlement provided to eligible veterans and service members. It is currently set at $36,000, which allows the VA to guarantee up to 25% of a loan amount up to $144,000. Lenders typically offer loans that exceed this amount by utilizing additional entitlement.
- Additional Entitlement: Additional entitlement is the remaining amount of entitlement that veterans and service members can utilize to access higher loan limits. The exact amount of additional entitlement varies based on the loan limit in the county where the property is located. In most areas, the loan limit is $726,200 for 2023, but it can be higher in certain high-cost counties.
Maximum Loan Amount
The maximum loan amount you can qualify for with a VA loan is directly tied to your available entitlement. The VA guarantees up to 25% of the loan amount, as long as the borrower’s entitlement covers that portion. For example, if you have the full $36,000 basic entitlement and the loan limit in your county is $144,000, you can potentially secure a loan of up to $144,000 with no down payment required. If you have additional entitlement, you can access higher loan limits based on the loan limit in your county.
Entitlement Restoration
One misconception about VA entitlement is that it is a one-time benefit. In reality, your entitlement can be restored and reused. If you pay off your VA loan or sell the property, your entitlement is restored, allowing you to use it for another VA loan in the future. However, it’s important to note that using your entitlement for a new loan before paying off an existing VA loan may impact your ability to secure a VA loan without a down payment.
More than one VA loan
Did you know that you can have more than one VA loan at the same time? Yes, it’s true. If you use your VA loan for a purchase then want to purchase a second home using your VA loan down the road, you CAN do that! There is one caveat though – the total entitlement for the two VA loans cannot exceed 25% of the county loan limit where you are purchasing the new home. Otherwise, there will be a down payment requirement.
Entitlement and VA Loan Fees
VA loans typically come with a funding fee which goes directly to the VA to help offset the cost of the loan guarantee program. The funding fee varies based on factors such as the loan type, down payment amount, and whether it’s your first or subsequent use of the VA loan benefit. The funding fee is a one-time payment that can be rolled into the loan amount. It’s important to consider the funding fee when determining the total cost of your VA loan and its impact on your budget. Veterans with service related disabilities are exempt from the VA funding fee.
VA Entitlement and Co-Borrowers
If you are applying for a VA loan with a co-borrower, such as a spouse or another eligible veteran, the entitlement requirements can vary. In cases where both borrowers are eligible veterans, each borrower’s entitlement can be considered separately, and their combined entitlement determines the maximum loan amount with $0 down. If one borrower is not a veteran, but the borrower/co-borrower are married, the primary eligible veteran’s entitlement can be used.
Understanding your VA entitlement is crucial when considering a VA loan. It determines the maximum loan amount you can access, influences your loan eligibility, and impacts your ability to secure favorable loan terms and conditions. By familiarizing yourself with your entitlement, its types, and the entitlement restoration process, you can make informed decisions about your VA loan options. Remember to consult with a VA-approved lender to gain a comprehensive understanding of your entitlement and how it applies to your specific situation. With your VA entitlement, you can take advantage of the benefits and opportunities provided by the VA loan program.
