VA
Entitlement

VA Entitlement is a key feature of the VA loan program, a home financing option backed by the U.S. Department of Veterans Affairs (VA) that is available to eligible veterans, active-duty service members, and certain military spouses. Understanding how VA entitlement works is crucial to making the most of this benefit when buying or refinancing a home.

What is VA Entitlement?
VA entitlement refers to the amount of money the VA guarantees to a lender on behalf of a borrower. This guarantee reduces the risk for lenders, allowing them to offer loans with favorable terms, such as no down payment and competitive interest rates, without requiring private mortgage insurance (PMI).

There are two types of VA entitlement:

Basic Entitlement: This provides a guarantee of up to $36,000 or 25% of the loan amount, whichever is less. For loans above $144,000 (which most homes exceed), the basic entitlement is generally a quarter of the loan.

Bonus (or Second-Tier) Entitlement: For home purchases that exceed the conforming loan limit in certain high-cost areas, the VA offers a “bonus” entitlement. This allows veterans to buy more expensive homes without making a down payment, even if they have already used some or all of their basic entitlement.

Using VA Entitlement for a VA Loan
When you apply for a VA loan, the entitlement helps determine how much of a home loan the VA will guarantee. Here’s how it pertains to the process:

– No Down Payment: One of the biggest advantages of a VA loan is that you can often finance the entire value of the home without a down payment, provided your full entitlement is available. The VA typically guarantees up to 25% of the loan, which removes the lender’s requirement for a down payment in many cases.

– Restoration of Entitlement: If you’ve already used your VA entitlement to purchase a home, it may be possible to restore it. You can restore full entitlement by selling the home and paying off the VA loan in full, or by refinancing the loan into a conventional mortgage. This allows you to use your entitlement again for future home purchases.

– Partial Entitlement: If you have used part of your entitlement but haven’t repaid the loan or sold the property, you can still get another VA loan using the remaining entitlement. However, in this case, a down payment might be required, depending on the loan amount and the amount of entitlement still available.

– VA Loan Limits: Since 2020, VA loan limits have been removed for veterans with full entitlement. This means qualified veterans can borrow any amount their lender is willing to approve without being restricted by county loan limits. For those with partial entitlement, however, loan limits still apply.

Example of VA Entitlement in Action

Suppose a veteran has full basic entitlement and wants to buy a $400,000 home. The VA guarantees 25% of the loan, so $100,000 of that loan is backed by the VA. This eliminates the need for a down payment or PMI, assuming the lender approves the loan based on other financial factors like credit score and income.

If the veteran already used $50,000 of entitlement on a prior home and still owns that property, the remaining entitlement would only cover part of the loan guarantee. In this case, the lender may require a down payment to bridge the gap between the guarantee and the loan amount.

VA entitlement is the backbone of the VA loan program, enabling veterans to secure home loans with favorable terms. Understanding how your entitlement works, and how much you have available, is essential when purchasing a home. Whether you’re a first-time homebuyer or looking to use your entitlement again, working with a lender experienced in VA loans will help ensure you maximize the benefits you’ve earned.