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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Introduction to VA Loan Entitlement
VA loan is one of the most common mortgage programs that are available for borrowers.
If you are planning to buy a new home, and if you are an active service member or a veteran, a VA loan is the best bet for you.
However, there is a process that needs to be followed for you to qualify for a VA loan. One of the processes includes acquiring VA loan entitlement.
In this post, we will understand what is VA loan entitlement and its benefits.
What is VA Loan Entitlement?
The VA loan entitlement is an amount that is guaranteed by the Department of Veterans Affairs for the borrowers who are eligible for a VA loan.
This is the amount that the VA department guarantees to pay the mortgage lender in case the borrower defaults on the payment.
One of the best advantages of a VA loan is that you can get a VA loan without making any down payments.
Your VA loan entitlement will indicate the maximum amount of loan you can borrow without making any down payments.
As per the January 2020 update, the VA has removed any limit on the loan size for the borrowers applying for VA loans with no down payment.
The VA department will guarantee up to 25% of the loan amount for these borrowers.
More About VA Loan Entitlements
Since their creation in 1944, VA loans have been backed by the federal government which provides a financial guarantee on every single loan.
The guarantee is like a form of insurance where the VA pledges to repay a portion of the loan if the borrower defaults.
The guarantee is typically 25 percent of the loan and it is reflected in a dollar amount known as VA entitlement.
Your amount of VA home loan entitlement can vary depending on how you have used your home loan benefit.
There are two layers of entitlement, a basic entitlement level and the second tier of entitlement.
The VA loan basic entitlement is valued at $36,000 and the second-tier entitlement is linked to the confronting limits set in your particular county.
If you have never used the benefit before, or if you don’t have an active VA loan right now, you are eligible to get a full entitlement.
With a full entitlement, there is no limit on how much you can borrow without a down payment.
The VA loan limits do not apply to the borrowers with their full VA loan entitlement.
This can mean that the borrower should make a down payment or what otherwise is a zero down loan program.
If you have an active VA loan or if you have lost one to foreclosure, you can still look to reuse the benefit this is known as reduced entitlement.
This is a very important point because many veterans think that this is a one-time benefit.
The lenders will calculate your remaining entitlement based on your county’s loan limits and the amount of entitlement that you have used or lost on previous loans.
That leftover entitlement is how the qualified borrowers can look to have two or more VA loans at the same time.
How to Calculate VA Entitlement?
If you have used full entitlement there is no calculation required as you don’t have any limit to borrow in case of the full entitlement without making any down payment.
If you have already used your entitlement, you might want to know how much entitlement is left or how much of it you have already utilized.
The VA guarantees up to 25% of the loan amount. If you have taken a loan of $500,000, than you have utilized, $500,000 x 0.25 = $125,000.
This means that you have utilized up to $125,000 of your VA entitlement amount.
If your total entitlement is $270,000, you are still eligible to get an entitlement of $145,000 for the second home.
However, you also need to check the confronting loan limits in your county which is $647,200 in most of the counties.
Can a VA Loan Entitlement be Restored?
The basic restoration term is super easy. Essentially, if a person buys a house using their VA loan and when they sell that house, the portion that they have sued on their VA loan to buy the house gets restored automatically.
That is the easiest way to restore your VA entitlement. The other option is called one-time restoration.
This means if you buy a house they want to keep the house and want to restore some of their entitlement their immediate thought is to refinance it through a non-VA loan like a conventional loan.
After refinancing the borrower needs to apply for a one-time restoration waiver. To apply for this waiver, you have to apply to VA stating that the property is now on a non-VA loan and would like to get a one-time restoration done on this house.
Conclusion
VA loan entitlements can get confusing and complicated in a hurry. Talk to your trusted loan officer in detail if you have questions about your entitlement situations and what it means for your purchasing power.
It is the loan officer’s job to let you know the status of your entitlement.
