Understanding VA Loan Entitlement And The Benefits

Understanding your VA loan entitlement and the role it plays in the home buying process can be challenging. However, with a little guided research you’ll be able to identify key concepts like how much you qualify and how to calculate it.

Once you start shopping around for mortgages, it’s important to understand how much you’ll be able to borrow to purchase a home. If you’re eligible for a VA loan, your certificate of eligibility (COE) will state the amount of your entitlement. But what exactly does that dollar figure mean? You may even be wondering whether your VA entitlement amount limits how much you can borrow.

Find the answers here as we review how VA loan entitlement works and what it means for eligible veterans.

VA entitlement is the amount the Department of Veterans Affairs (VA) will guarantee on a borrower’s VA loan. In other words, it’s the maximum amount the VA will repay your lender if you default on your loan.

But what does this mean for home buyers? One of the great benefits of getting a VA loan and certain other nonconforming loans is that you don’t need to make a down payment. Your VA entitlement amount indicates the maximum amount you can borrow without making a down payment.

Full Entitlement

You should have full entitlement if you’ve never gotten a VA loan or you paid off a previous VA loan and sold the property the loan was used to purchase.

When you have full entitlement, none of your entitlement is tied up in another property, and your full entitlement is available to purchase a home.

There is no limit on how much you can borrow without needing to make a down payment. The VA will guarantee up to 25% of the loan amount – even if it exceeds the conforming loan limit in your county or county where you want to buy a home.

However, that doesn’t mean you can borrow an unlimited amount of money; you can only borrow as much as you qualify for with a lender. Your lender will look at your income, credit score, debts and credit history to determine how much they will lend you.

Reduced Entitlement

If your entitlement amount is reduced, technically, there is no limit on how much you can borrow to purchase a home. But if your loan amount exceeds your total entitlement amount (basic entitlement + bonus entitlement), you have to make a down payment.

You may have partial entitlement if you’re currently paying back a VA loan, you’ve repaid your loan but still own the home you purchased with the loan or you defaulted on a previous VA loan.

If your entitlement is reduced, the VA will only guarantee up to 25% of the county’s conforming loan limit, minus the amount of your entitlement you’ve already used.

We’ll show you how to calculate your reduced entitlement amount further down.

Certificate Of Eligibility (COE) And VA Entitlement Codes

A certificate of eligibility (COE) is a document that proves an active-duty service member or veteran meets the military service requirements to apply for a VA home loan. And the COE also contains information about the entitlement amount.

Your COE will have an entitlement code listed on it. Most of these codes correspond with specific wartime or peacetime periods and indicate how you earned your entitlement.

For example, entitlement code 10 means you served in the Persian Gulf War.

If you previously took out a VA loan, your entitlement code might be 05. It means you’ve used your VA home loan benefits before, and the VA restored your entitlement, allowing you to take out another VA loan with full entitlement.

If you don’t have a COE your lender can typically obtain this for you once you start the mortgage application process. You can also apply for your COE online through the VA’s eBenefits site.

Your COE will tell you how much you have in “basic” entitlement. However, you’ll also likely have an additional entitlement you can use, sometimes called your bonus or Tier 2 entitlement.

The concept of basic entitlement and bonus entitlement can get a little confusing, but borrowers generally won’t have to worry about these terms. Here’s a short breakdown of the two types of entitlement and how they work.

Basic Entitlement

If you have full entitlement, your COE will say, “This veteran’s basic entitlement is $36,000."

It’s important to note that the $36,000 isn’t a limit on how much you can borrow or how much the VA will guarantee. For loans under $144,000, the VA will guarantee 25% of the loan amount up to $36,000.

That doesn’t mean you’re limited to loans up to $144,000. Once you’ve used up your basic entitlement, your bonus entitlement kicks in.

Bonus Entitlement

Bonus entitlement is available for loans over $144,000. If you have full entitlement, the VA will guarantee up to 25% of your loan amount.

If you have reduced entitlement, the VA will only guarantee up to 25% of your county’s conforming loan limit, minus the amount of entitlement you’ve already used.

If your COE states that your entitlement is $0, it doesn’t mean you can’t get a loan. It just means that your entire $36,000 basic entitlement is currently being used. You may still have bonus entitlement available.

To figure out how much bonus entitlement you have after using your full basic entitlement, you’ll have to do a little bit of math. Let’s see how to calculate this.

You don’t have a loan limit if you have full entitlement, so you don’t need to worry about calculating how much entitlement you have. You can borrow as much money as a lender is willing to lend with no down payment.

If you have reduced entitlement and want to know how much you have left, you’ll need to figure out how much entitlement you’re currently using.

Remember that the VA guarantees up to 25% of your loan. To find out how much of your entitlement you’ve used, simply multiply your loan amount by 0.25.

Loan Amount × 0.25 = Entitlement You’ve Used

You’ll also need to determine your county’s conforming loan limit. In 2022, the baseline conforming loan limit was $647,200. In 2023, the loan limit is $726,200. In high-cost areas like New York City or other major metro areas, the loan limit may be higher than this.

What Is The Maximum Entitlement On A VA Loan?

The maximum entitlement is equal to 25% of the conforming loan limit for your county.

County Conforming Loan Limit × 0.25 = Maximum Entitlement

However, if you have a reduced entitlement, you likely won’t be able to borrow up to the maximum without a down payment. You can determine your remaining entitlement by subtracting the entitlement you’ve already used from the maximum entitlement amount.

Maximum Entitlement − Entitlement You’ve Used = Remaining Entitlement

Your remaining entitlement is the maximum amount the VA will guarantee on your loan. Since the VA guarantees 25% of the loan, you can multiply your remaining entitlement by 4 to see the maximum amount you can borrow without making a down payment.

Remaining Entitlement × 4 = Maximum Loan Amount With Zero Down

If you’re confused, don’t worry – you aren’t alone. We’ll use an example so you can see how this works in practice.

Example

Let’s say you used a VA loan to purchase your current home for $300,000, and you’ve just received permanent change of station orders. You plan to buy a home at your new assignment but can’t sell your current home and have your VA loan entitlement restored. This means you’ll end up buying your new home with your remaining entitlement.

The amount of entitlement you’ve already used is equal to 25% of the loan amount. In this scenario, you’ve already used $75,000 of your entitlement.

$300,000 × 0.25 = $75,000

The conforming loan limit in your new location is the standard limit: $726,200. That means the maximum amount the VA will guarantee is $181,550.

$726,200 × 0.25 = $181,550

To find out what your remaining entitlement is, you’ll need to subtract the amount you’ve already used from your county loan maximum.

$181,550 – $75,000 = $106,550

Your remaining entitlement is $106,550. To find out the total amount you can borrow with no down payment, multiply $106,550 by 4.

$106,550 × 4 = $426,200

You could potentially get a loan up to $426,200 without having to make a down payment.

You may be able to take out a larger loan, but you’ll likely need to make a down payment to make up the difference between the amount you want to borrow and the maximum amount your entitlement covers.

If your new loan is for $500,000, the VA won’t guarantee that additional $73,800 ($500,000 – $426,200 = $73,800). This means that you’d likely need to cover 25% of the difference (which is $18,450) with your own funds.

The VA doesn’t lend VA loans directly. Private lenders originate VA loans, and the VA agrees to guarantee a portion of each loan it originates. This agreement is sometimes referred to as a guaranty.

Your entitlement is the amount that the VA will guarantee on your loan. If you default on your loan, the VA will repay your lender up to this amount.

A VA loan entitlement won't give you cash because a VA loan is a type of government loan. Since the federal government backs the loan, the borrowed money can only go toward the home, not for any other purposes.

If you qualify for a VA loan, you can use your entitlement as many times as you’d like. However, if you want a zero-down payment mortgage, you’ll need your basic, bonus or combined entitlement available to cover the loan’s cost.

Restoring Your VA Loan Entitlement

If you’ve previously taken out a VA loan, you can have your entitlement fully restored by paying back the loan and selling the property attached to the loan. You may also qualify for a one-time entitlement restoration if you’ve paid back your loan (either by reaching the end of the loan term or by refinancing to a different loan type, such as a conventional mortgage loan), but haven’t sold the property attached to the loan.

If you don’t have full entitlement and don’t qualify for a one-time restoration, figure out how much remaining entitlement you have by using the formulas discussed above.

Essentially, you can’t use entitlement that’s already tied up in a loan, but once your entitlement has been restored, typically by repaying your loan and selling your home, you’re free to reuse your full entitlement benefit.

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 a lender is willing to offer. 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 Rocket Mortgage^®.