Understanding VA loan entitlement is vital for making the most of your hard-earned benefit. Here, we break down basic vs. bonus entitlement and how your entitlement affects your down payment and maximum loan amount.
Veterans who are eligible for a VA loan have VA loan entitlement, which is basically a dollar amount the VA promises to repay back to a lender in the event you default on your mortgage.
This sounds quite simple, but in reality the concept of VA entitlement is often a confusing one.
You can think of it as something you're entitled to given your service to our nation. This is certainly a hard-earned and well-deserved benefit. But that's not entirely what it means, at least in practical terms.
VA loan entitlement is the dollar amount the Department of Veterans Affairs will guarantee on each VA home loan and helps determine how much a veteran can borrow before needing a down payment. VA loan entitlement is typically either $36,000 or 25% of the loan amount up to the conforming loan limit.
There are benefits to providing a down payment on a VA loan if you can afford it. But if you do want to use your 0% down benefit, it is vital to understand that, in most cases, it is only available if you have full entitlement.
Generally, Veterans and service members have full entitlement if they meet service eligibility requirements and:
Homeowners with active VA mortgages on their property have reduced or partial entitlement. The same is true for Veterans who’ve lost a VA loan to foreclosure and those who’ve allowed a VA loan assumption without a Substitution of Entitlement.
In most cases, homeowners simply sell their current VA-backed property and then regain their full entitlement by completing a VA restoration of entitlement.
However, you don't have to have full entitlement to get a second VA loan. To understand how this is possible, you need to know the difference between basic and bonus entitlement.
There are two VA loan entitlement types: basic and secondary entitlement; with basic, or primary, entitlement being $36,000.
Typically, the VA pledges to repay up to 25 percent of the loan amount. However, if we do the math, it’s easy to see that $36,000 x 4 = $144,000.
To stay competitive and ensure Veterans across the country have access to homeownership, the VA started to link its guaranty amounts with the conforming loan limit for conventional financing, thereby creating a bonus layer of entitlement.
VA bonus entitlement, also known as secondary and second-tier entitlement, is what comes into play for loan amounts over $144,000. Bonus entitlement also allows qualified Veterans to have multiple VA loans at once.
Bonus entitlement is the dollar amount that bridges the gap between the basic entitlement amount of $36,000 and a quarter of your loan amount over $144,000.
So, if you were looking at a mortgage for $660,000 and didn’t want to provide a down payment, you would use $165,000 worth of your entitlement (25% of $660,000). In this case, your bonus entitlement would be $129,000 ($165,000 – $36,000).
Remember, the VA promises to cover a quarter of the loan amount in most cases.
A quarter of current loan limit in most counties ($726,200) is $181,550. In order to meet that mark, the VA essentially created a secondary entitlement amount ($181,550 - 36,000 = $145,550). That additional layer of entitlement comes into play anytime a Veteran purchases a home for more than $144,000.
It's important to understand that there's no maximum amount on a VA loan. You can get as much as the lender is willing to give you without the need for a down payment, provided you qualify and have your full VA loan entitlement.
Some of the country's most expensive areas have loan limits that exceed the conforming loan limit. Think parts of California, New York, Virginia, Hawaii and a handful of other states.
The VA has higher loan limits in those high-cost counties that can range up to $1,089,300.
The VA loan limits are subject to change every year, reference this loan limit calculator to see your 2023 loan limits.
The concept of secondary entitlement is what allows qualified veterans to have two VA loans in play at the same time.
I've written about this topic recently, so if you'd like to learn more about having two VA loans at once, check out second-tier entitlement and getting a second VA loan. Just know there are additional restrictions and requirements with having coinciding VA loans.
You can also check out our Comprehensive VA Home Loan Guide for additional resources.
A Veterans United Home Loans specialist can help you determine your entitlement. Talk to a loan specialist at 855-870-8845 or start your home loan quote today.