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VA Loan Entitlement

02/05/24 01:17 PM Comment(s) By Gordon Goosen

Understanding VA Loan Entitlement and the Benefits

Understanding your VA loan entitlement and its role in the home buying process might seem daunting. However, a bit of guided research can help unravel key concepts, such as determining how much you qualify for and how to calculate it.

As you embark on the mortgage shopping journey, it's crucial to grasp your borrowing capacity for home purchase. If eligible for a VA loan, your Certificate of Eligibility (COE) will specify your entitlement amount—a figure that may leave you wondering about its implications on your borrowing limit.

Let's delve into the intricacies of VA loan entitlement to shed light on what it means for eligible veterans.

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VA Entitlement Defined:

VA entitlement is the sum the Department of Veterans Affairs (VA) guarantees on a borrower's VA loan—the maximum amount the VA will reimburse your lender in case of loan default.

For homebuyers, this translates into a significant benefit. VA loans and certain nonconforming loans allow you to forgo a down payment, with your entitlement amount indicating the maximum borrowable sum without requiring a down payment.

Full Entitlement:

Full entitlement is granted if you've never had a VA loan or if you've paid off a previous VA loan and sold the associated property. With full entitlement, all your entitlement is available to purchase a home, and there's no cap on the borrowing amount without a down payment.

Yet, it's essential to note that while the VA guarantees up to 25% of the loan amount, your actual borrowing limit is determined by factors like income, credit score, debts, and credit history, assessed by your lender.

Reduced Entitlement:

If your entitlement amount is reduced, there's technically no cap on your home purchase borrowing, but exceeding your total entitlement (basic + bonus) mandates a down payment.

Partial entitlement may arise from scenarios like ongoing VA loan repayment, loan repayment while retaining ownership of the purchased home, absence of a one-time entitlement restoration, or defaulting on a previous VA loan.

To calculate reduced entitlement, you'll need to understand your county's conforming loan limit and subtract used entitlement from 25% of that limit.

Certificate Of Eligibility (COE) And VA Entitlement Codes:

Your COE is a crucial document indicating your eligibility for a VA home loan and specifying the entitlement amount. The COE includes an entitlement code, corresponding to specific service periods and detailing how entitlement was earned.

I'm purchasing
I'm refinancing

Types Of VA Loan Entitlement:

Your COE typically outlines both "basic" entitlement and potential bonus or Tier 2 entitlement. While basic entitlement is mentioned outright, bonus entitlement comes into play for loans exceeding a certain amount.

Basic Entitlement:

For full entitlement, your COE might state, "This veteran's basic entitlement is $36,000." However, this isn't a borrowing limit. The VA guarantees 25% of the loan amount up to $36,000 for loans under $144,000.

Bonus Entitlement:

Available for loans exceeding $144,000, bonus entitlement ensures the VA guarantees up to 25% of the loan amount. Reduced entitlement adjusts this guarantee based on the county's conforming loan limit.

Calculating Your VA Entitlement Amount:

With full entitlement, there's no borrowing limit, but for reduced entitlement, calculate used entitlement, determine the county's loan limit, and find the remaining entitlement. This remaining entitlement signifies the maximum amount the VA guarantees on your loan without a down payment.

Entitlement Vs. Guaranty:

While the VA doesn't directly lend VA loans, private lenders do, with the VA guaranteeing a portion—referred to as a guaranty. Entitlement represents the guaranteed amount, providing assurance to lenders in case of default.

Does VA Loan Entitlement Provide Cash To The Veteran?

No, a VA loan entitlement doesn't provide cash to the veteran as it is dedicated solely to the home purchase. The loan is government-backed, restricting its use to the property's acquisition.

Is VA Loan Entitlement A Lifetime Benefit?

Yes, if eligible, you can use your VA loan entitlement multiple times. However, for a zero-down mortgage, you need available basic, bonus, or combined entitlement.

Restoring Your VA Loan Entitlement:

Entitlement can be fully restored by repaying a previous VA loan and selling the associated property. Alternatively, a one-time entitlement restoration may be possible if you've repaid the loan without selling the property.

In essence, understanding your VA loan entitlement empowers you to gauge the guaranteed amount and navigate the home buying process confidently. Regardless of available entitlement, your borrowing limit is determined by your lender, ensuring a loan that aligns with your financial comfort.

Ready to kickstart the home buying process? You can conveniently apply for a mortgage online with Pilot Mortgage.

Bottom Line: We Can Help You Understand How Much You Can Borrow With Zero Down

Your VA loan entitlement amount tells you how much of your loan the VA will guarantee.

No matter how much entitlement you have available, you’ll only be able to borrow as much as the guidelines allow. Plus, you should ensure you’re getting a loan you can comfortably afford for your budget.

Ready to start the home buying process? You can apply for a mortgage online with Pilot Mortgage.

Need a person to talk to and hear advice on a new loan?

As a Veteran Owned company, we will guide you with full transparency.

Call (480) 980-1428

Gordon Goosen

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