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Understanding VA Loan Entitlement And The Benefits

Molly Grace8-minute read

July 14, 2021

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Once you start shopping around for mortgages as part of the home buying process, it’s important that you understand how much you’ll be able to borrow to purchase a home.

For VA loan borrowers, this might seem like kind of a confusing process. According to your certificate of eligibility (COE), you have a certain amount of entitlement, but what exactly does that mean? Does your VA entitlement amount limit how much you can borrow?

Let’s go over how VA loan entitlement works and what it means for you.

What Is VA Loan Entitlement?

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

What does this mean for borrowers? One of the great benefits of getting a VA loan is that you don’t need to make a down payment. Your VA entitlement amount tells you the maximum amount you can borrow without having to make a down payment.

As of January 1, 2020, VA loan borrowers with full entitlement don’t have a limit on how much they can borrow with a 0% down payment. For these borrowers, the VA will guarantee up to 25% of the loan amount on loans of any size.

Full Entitlement Vs. Reduced Entitlement

What does it mean to have full entitlement?

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

This means that none of your entitlement is being used and your full entitlement is available to you.

When you have full entitlement, you don’t have a limit on how much you can borrow without making a down payment. The VA will guarantee up to 25% of the loan amount, even if it exceeds the conforming loan limit for your county.

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

If your entitlement amount is reduced, you technically also don’t have a limit to how much you can borrow, but if you exceed your entitlement, you will have to make a down payment.

Your entitlement may be reduced if you currently have a VA loan that you’re still paying back, have paid your loan in full but still own the home you used the loan to purchase, or if you defaulted on a previous VA loan.

If your entitlement is reduced, the VA will only guarantee your loan up to the conforming loan limit, minus the entitlement you’re currently using. We’ll go over exactly how to figure out your reduced entitlement amount further down.

Certificate Of Eligibility (COE) And VA Entitlement Codes

Your COE is the document that proves that you meet the service requirements to be eligible for a VA loan. It will also have information on it about your 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, if you have entitlement code 10, it means you served during the Persian Gulf War.

If you’ve previously taken out a VA loan, your entitlement code might be listed as “05.” This means that you’ve used your VA loan benefit before and your entitlement has been restored, allowing you to take out another VA loan.

If you don’t have a COE, no sweat. Your lender can typically obtain this for you once you’ve started the mortgage application process. You can also apply for your COE online through the VA’s eBenefits site.

Types Of VA Loan Entitlement

Your COE will tell you how much “basic” entitlement you have. However, you’ll also likely have additional entitlement that can be used, sometimes called bonus or tier 2 entitlement.

The concept of basic entitlement and bonus entitlement can be a little confusing, but borrowers generally won’t have to worry about these terms too much. Here’s a little primer on these 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 this is not a limit on how much you can borrow, or even how much the VA will guarantee. All this means is that on loans under $144,000, the VA will guarantee up to $36,000 – 25% of the loan amount.

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 what you have on 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’re currently using.

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

If you’ve used your basic entitlement, how do you figure out how much bonus entitlement you have? You’ll have to do a little bit of math. Let’s go over how to calculate this.

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Calculating The VA Entitlement Amount

If you have full entitlement, you don’t have a loan limit, so you don’t need to worry about calculating how much entitlement you have. You can borrow as much as a lender will give you 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 of it 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 already used

You’ll also need to determine your county’s conforming loan limit. In 2021, the baseline conforming loan limit is $548,250. In high-cost areas, it may be higher than this.

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 with no 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 already 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 having to make a down payment.

Remaining entitlement × 4 = maximum loan amount with zero down

Confused? Don’t worry – let’s go over an example so you can see how this works in practice.

Example

Let’s say you previously 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 duty station, but aren’t able to sell your current home and have your VA loan entitlement restored. This means you’ll have to buy your home with your remaining entitlement.

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

300,000 × 0.25 = 75,000

The conforming loan limit in your new location is the standard limit: $548,250. That means the maximum amount the VA will guarantee is $137,062.

548,250 × 0.25 = 137,062.5

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

137,062 – 75,000 = 62,062

Your remaining entitlement is $62,062. To find out the total amount you can borrow with no down payment, multiply this number by 4.

62,062 × 4 = 248,248

So, you could potentially get a loan up to $248,248 without having to make a down payment.

If you want to take out a loan larger than this, you may still be able to do so. However, you’ll need to make a down payment on the difference between the amount you want to borrow and the maximum amount your entitlement covers.

So, if your new loan was for $280,000, the VA wouldn’t guarantee that additional $31,752 (280,000 – 248,248). This means that you’d likely need to cover 25% of the difference – $7,938 – with your own funds.

Entitlement Vs. Guaranty

The VA doesn’t lend VA loans directly. Private lenders originate VA loans and the VA agrees to guarantee a portion of each loan they originate. 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.

Is VA Loan Entitlement A Lifetime Benefit?

If you qualify for a VA loan, you can use that benefit as many times as you’d like. However, if you want a zero down payment mortgage, you’ll need to have entitlement available to cover the cost of the loan.

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 into a different loan type, such as a conventional mortgage) 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, you can figure out how much remaining entitlement you have by using the formulas we discussed above.

Essentially, you can’t use entitlement that’s already tied up in an active 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.

The Bottom Line: Entitlement Helps 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.

If you’re a first-time VA borrower or you’ve paid off a previous VA loan and sold the property you used the loan to purchase, you should have full entitlement, which means that the VA will guarantee up to 25% of your loan, with no loan limit.

If you have entitlement tied up in another loan, your entitlement amount will be limited by your county’s loan limit and how much of your entitlement has already been used. If you want to borrow beyond this, you’ll need to bring a down payment to the closing table.

No matter how much entitlement you have available, you’ll ultimately only be able to borrow as much as a lender is willing to give you. Plus, you want to ensure you’re getting a loan your budget can comfortably handle. Rocket Mortgage® has a few different tools you can use to get an idea of how much you can afford.

Ready to start the home buying process? You can apply online with Rocket Mortgage.

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Molly Grace

Molly Grace is a staff writer focusing on mortgages, personal finance and homeownership. She has a B.A. in journalism from Indiana University. You can follow her on Twitter @themollygrace.