Understanding Your VA Loan Entitlement

If you qualify for a loan from the Department of Veterans Affairs (VA), you have something called VA loan entitlement. This is the amount of money the government will pay your lender if you default on a home loan. Understanding your entitlement is crucial to navigating the VA home loan process with confidence.

What is VA entitlement?

Most mortgage loans are an agreement between two people: a borrower and a lender. But with a government-backed loan like a VA loan, the government steps in as a third party to “guarantee” the loan. Your VA loan entitlement is a promise the VA has made to you that it will guarantee your loan, meaning that it will reimburse your lender a certain dollar amount if you fail to repay your mortgage. How much, and when, is calculated using a baseline figure called the “basic” or “primary” VA entitlement.

If you meet minimum loan requirements, most lenders will loan you up to four times the basic entitlement without requiring a down payment. If you have already used your VA entitlement before, you may not be able to access the full amount.

VA loan entitlement is a great benefit because it gives you a leg up in the homebuying process: With the VA loan guaranty acting almost like a mortgage insurance policy for your lender, you’re more able to secure loans with good terms and, in 90% of cases, no down payment.

Having entitlement is only one requirement for a loan — your lender will still have income and credit qualification requirements that you must meet.

You may be eligible for VA entitlement if you meet any of the following minimum service requirements:

• You are an active-duty service member who has served for 90 consecutive days.
• You are a veteran, National Guard member or Reserve member who meets the active-duty requirements for your dates of service.
• You are the spouse of a veteran who died in the line of duty or from a service-connected disability.

How to determine your VA entitlement

The easiest way to check your VA entitlement is to request a certificate of eligibility (COE) online at the Veterans Information Portal.

Your COE will list exactly how much entitlement you have; if you don’t currently have a VA loan, it will show the full basic VA entitlement of $36,000. If you own any other VA-financed properties, the COE will provide details about the loans and how much entitlement you’ve used.

For veterans with full entitlement, there is no limit on how much the VA will guarantee. Whatever the loan amount, if you can find a lender who will approve you for that loan, the VA will guarantee a quarter of the loan amount.

Partial entitlement: How to calculate how much VA loan entitlement you have left

If you’ve taken a VA loan out already, part of your entitlement may already be in use by that previous loan. For example, if your first loan hasn’t been fully paid off or went into foreclosure, or you refinanced into a non-VA loan, you’ll need to do some additional calculations to find out if you have partial entitlement left.

Here’s how to calculate the amount of basic entitlement you have left for a second (or any subsequent) VA loan if you are still using part of your entitlement on a first loan:

Step 1:Multiply the loan amount of your first VA loan by 0.25. This will tell you how much of your entitlement you’ve already used.

Step 2:Subtract that amount from the $36,000 maximum basic entitlement.

Step 3:The resulting number is the amount of basic entitlement you have left. If it’s a negative number, consider the remaining basic entitlement to be $0.

However, because of something called “bonus” entitlement, there is likely additional remaining entitlement. Your total remaining entitlement (basic plus bonus) is 25% of the conforming loan limit of the county in which you are buying your second (or most recent) house minus the amount of your entitlement you’ve already used. Here are the steps needed to calculate it:

Step 1:Find the conforming loan limit in the county in which you are planning to buy your second house and multiply it by 0.25. This is your maximum total guaranty.

Step 2:Subtract the amount of entitlement you’ve already used from your maximum total guaranty.

Step 3:The resulting number is your total remaining entitlement.

To take a concrete example, say a veteran bought a house with a VA loan for $250,000 three years ago but is still making payments on it. Now he wants to move and buy a second home with a second VA loan in the new location. He’s already used all of his basic entitlement, because 25% of his first loan amount is $62,500 — more than the $36,000 maximum basic entitlement. The conforming loan limit in his county is $647,200, which means that his maximum total guaranty is $161,750. But he’s already used that $62,500 on the first loan, so his total remaining entitlement is $99,250.

How to calculate your zero-down VA loan limit based on your remaining entitlement

Remember: If you have full entitlement, there’s no need to calculate this because you have no loan limit.

For those with reduced entitlement, the steps to calculate the maximum amount you can borrow without having to put any money down are as follows:

Step 1:Find the conforming loan limit in the county in which you are planning to buy your second house and multiply it by 0.25. This is your maximum total guaranty.

Step 2:Subtract the amount of entitlement you’ve already used from your maximum total guaranty. The resulting number is your total remaining entitlement.

Step 3:Look up the conforming loan limit for your county and multiply it by 0.25. This is how much of your entitlement you’ve already used.

Step 4:Multiply that number by 4 to arrive at the maximum loan amount you can take out without having to make a down payment.

How to calculate how much of a down payment you need for a second home loan

If you have partial entitlement and have your eye on a second VA home loan, be aware that you may have to put some money down on that second home, especially if you’re buying in a high-cost area. If your entitlement won’t cover the full amount of guaranty you would need for your second loan, you’ll have to come up with the difference in the form of a down payment. Here’s how to calculate how much this will be:

Step 1:Divide the price of your second VA home loan by 4. This is the base guaranty amount.

Step 2:Subtract the entitlement amount you used on your first home purchase from the base guaranty amount. This is the amount you have left to use on your second home loan.

Step 3:Subtract that number from the base guaranty amount. This is how much of a down payment you’ll need to make.

For example, let’s say you’ve found the house of your dreams, and it’s going to cost $647,200. You previously bought a house using a VA loan guaranty of $30,000. $647,200 divided by 4 is $161,800, which is your base guaranty amount. If you subtract the $30,000 guaranty from that, you get $131,800. Finally, subtract that $131,800 from your base guaranty amount of $161,800. This shows that you’ll need a $30,000 down payment.

Different types of VA entitlement: Understanding bonus entitlement

Along with the basic entitlement, the VA offers a bonus entitlement (sometimes called a “secondary,” “tier 2” or an “additional” entitlement) that kicks in when you take out a loan over $144,000. As we all know, in today’s housing market, there’s a high probability that $144,000 won’t cut it, which is why the VA offers bonus entitlement for loans that come in above $144,000 and doesn’t set any cap on how much your loan amount can be. Assuming you have full entitlement, the VA will guarantee a quarter of your loan, even if it exceeds conforming loan limits. The bonus entitlement covers the gap between what the basic entitlement can cover and what your loan amount requires.

The upshot of the distinction between basic and bonus entitlement is that if your COE says you have “$0” in basic entitlement left, it doesn’t necessarily mean you can’t get another VA loan. In that situation, you might still be able to buy a second home with VA financing because your bonus entitlement will kick in. Even if your first home loan went into foreclosure, you could be eligible for bonus entitlement as long as the loan amount is high enough.

If the different types of VA entitlement still feel confusing to you, rest easy knowing that you aren’t responsible for asking your lender for your bonus entitlement separately if your loan amount requires it. The terminology of “basic” and “bonus” entitlement will likely only come into play when your lender and the VA speak to each other about your loan. From the borrower’s side, it’s not necessary to master these concepts.

How and when to restore your VA entitlement

Because VA entitlement impacts how much you can borrow, it’s important to understand how to restore it. You’ll need to fill out VA Form 26-1880 to restore your eligibility in the following three scenarios:

• You sold your home, but your eligibility has yet to be restored. If your certificate of eligibility shows “PIF No Restoration,” that means your previous VA loan was paid in full but you haven’t applied for restoration. You’ll need to do so in order to access your VA loan entitlement.
• You’re tapping equity with a VA cash-out refinance. You’ll need to apply for a restoration of entitlement for cash-out refinance purposes only. The VA will restore your entitlement and apply it to the new mortgage.
• You paid off the VA loan on another home you still own. VA entitlement is tied to both the loan and the property. For example, if you still own and rent out a home with a paid-off VA home loan, you’ll need to request a one-time restoration to reestablish your full entitlement.