What Is the VA Loan Entitlement?
Loans are not something we average Americans deal with on a day to day basis. Understandably many people have questions on exactly how they work, and it all boils down to the type of loan you’re using.
VA loans come with their own unique set of requirements and parameters, and one of the most confusing aspects is the VA loan entitlement.
Let’s take a closer look at what VA loan entitlement is:
Basic and Bonus VA Loan Entitlement
VA loans are unique in that the Department of Veterans Affairs guarantees your loan up to a specific amount (currently they guarantee 25 percent). However there are limitations on how large the loan can be. They calculate this using what’s known as the VA loan basic entitlement and bonus entitlement.
The basic entitlement, also known as the primary, is $36,000. Multiply that figure by four and you have the maximum guaranteed amount for a loan, which comes out to $144,000. That may be adequate for some parts of the country, but in California you’ll be hard pressed to find a home for $144,000.
To keep things fair for veterans across the U.S. the VA is now offering a “bonus” loan entitlement that’s based on the conforming loan limit for conventional lending. In most areas of the country the bonus is $68,250, which is also multiplied by four for the maximum guaranteed loan amount.
Basic entitlement: $36,000 x 4 = $144,000
Bonus entitlement: $68,250 x 4 = $273,000
This brings the maximum loan amount for a 25 percent guarantee up to $417,000 for the vast majority of VA backed loans.
Factors That Affect VA Loan Entitlement
As if things weren’t complicated enough, there are a few other factors that will influence the amount of the VA loan entitlement you receive.
Each time a veteran gets a VA loan, they are using a portion of their set entitlement amount. There are rare cases when you can use remaining entitlement on multiple VA loans, but usually you have a set amount of entitlement you can use on your current loan.
In most cases the available entitlement amount is $104,250 (25 percent of $417,000). Let’s say you took out a loan for $150,000 a few years ago. The amount of entitlement used was $37,500 (25 percent of the loan amount). Once that amount is subtracted from $104,250, the remaining entitlement for the next loan is $66,750. Multiply that by four and you will get the maximum loan amount the VA will guarantee at 25 percent ($267,000).
Your basic entitlement amount is located on your Certificate of Eligibility. For more examples of how entitlement is affected by prior use, take a look at the mock scenarios created by the VA.
High-Priced Real Estate Markets
It may be inconceivable to some, but the standard $417,000 limit is below the average cost of a home in a number of real estate markets. From New York City to Boston to San Francisco, the majority of homes in some areas sell for $500,000 or more.
In an effort to give all veterans equal opportunity, the department makes special concessions for these high-price markets. They will use the conforming loan limit for conventional lending for that specific area to determine how much the bonus entitlement should be. The VA creates loan limits for each county by using this information.
VA Loan Entitlement Does Not Determine the Loan Amount
Many people mistakenly believe that the entitlement amount is the same thing as the loan amount. It’s actually just the maximum amount that will have a 25 percent guarantee from the VA, which can make it easier to qualify for a loan.
Regardless of the entitlement, you will still need to apply for the loan. The maximum loan amount you qualify for will depend largely on your credit, debt, and income amount. To receive the benefits of a VA guaranteed loan, you will need to work with a VA-approved lender like Intercap Lending Inc. Lenders are valuable resources for information on the VA loan process and the entitlement limits in your county, so make some calls to learn more about how much your loan entitlement will be.