One of the major benefits of your service in the military is acquiring a VA home loan guaranteed by the U.S Department of Veterans Affairs. What’s more, is that you possess more buying power in 2022 compared to previous years.
When the VA program started, only returning Veterans and those on active duty were qualified for the VA loan. However, modifications have been made recently to include surviving spouses of veterans, those who were honorably discharged, members of the National Guard and the Army Reserve, and some cadets.
Understanding what your VA loan entitlement entails may help you secure a home with little or no down payment. Here’s everything you need to know about the VA loan entitlement.
The VA Loan Entitlement Explained
The VA loan entitlement is a fraction of your loan the VA will repay should you default or fail to pay your loan. In simple terms, it is the maximum amount repaid to your lender by the VA in case you default on your loan.
The VA loan entitlement is not the total VA loan you can get or the payment made to you. It is simply a reference made to the maximum guarantee the VA provides to the lender.
The benefit of a VA entitlement is that you are not required to make a down payment. If you meet the stipulated loan requirements, most financial institutions can provide you loans that exceed the amount of your basic entitlement without requesting a down payment. This is because the guarantee is usually backed by the government.
VA entitlement is associated with the VA guarantee and it is similar to mortgage insurance on various loan types. The VA guarantee does not function like those backed by the Federal Housing Administration (FHA) and it is not included in your monthly or annual payment. Instead, the total guarantee is determined by your VA entitlement and your loan amount.
Types of VA Loan Entitlement
There are primarily two types of entitlement offered by the VA. They include basic and bonus entitlement. Here’s what they entail.
Basic Entitlement
The basic entitlement is centered on the premise that the VA will pay your borrower an amount up to $36,000 or 25% of your VA low amount should you fail to pay.
Usually, when you try accessing your VA loan entitlement, you come across $36,000 as the Standard amount, but this does not mean you can’t borrow more than that. Most mortgage firms would allow you to borrow up to $144,000 with no down payment.
Bonus Entitlement
The VA bonus entitlement is also referred to as second-tier entitlement. It grants you the ability to loan above the $144,000 basic limit, that is, you can purchase a better and more expensive home with the VA bonus entitlement.
Recently, adjustments have been made to the loan limits established by the Federal Housing Finance Agency (FHFA) due to the rising cost of houses. Veterans can now access loans to a tune of $647,200 and close to $1,000,000, giving you an edge in the real estate market.
How Can They Work Together
Whether you are purchasing, refinancing, or building a home, you can either use your basic or bonus VA entitlement. The new VA bonus entitlement guidelines stipulate that you can request a loan to purchase a home that is above the $647,200 loan limit for high-cost areas.
For instance, if you have a full entitlement and want to buy a home in an expensive neighborhood for $1.2 million, which is above the limit of $647,200. The VA guarantee will cover 25% of the loan amount (1.2 million). Hence, should you default, the VA is guaranteeing to repay the VA-approved lender about $300,000. The more reason why you don’t need to make a down payment before your loan is disbursed.
However, it’s important to bear in mind that a full entitlement doesn’t equate to an automatic approval for VA loans. The banks or mortgage institutions set their guidelines that must be met before considering you for approval. So ensure you communicate with your loan officer, especially if you’re purchasing an expensive home, to confirm if you qualify for their lending requirements.
Minimum Service Requirement to Qualify
There are some service requirements stated by the government for those on active duty or veterans and it also extends to military spouses. Before requesting a VA loan, you need to ensure you are eligible. Here are some of the basic requirements:
- You are a veteran, met the minimum service requirement, and were discharged honorably.
- Served 90 or more active days during the period of war or at least 181 consecutive active days of service during peacetime.
- Served for a minimum of six years in the National Guard or Selective Reserve.
To apply, you need to have a VA Certificate of Eligibility (COE). You will not be granted a loan without this certificate.
What if My Spouse Died in the Line of Duty?
You may be eligible for a VA loan if your spouse died in the line of duty. Also, unremarried spouses of veterans who died while actively serving are eligible.
However, to access the VA loan, you will have to prove that you’re getting dependency and indemnity compensation. If you’re not receiving this compensation, you will need to request a copy of the Report of Casualty statement (DD 1300) from the military and a duplicate of your marriage certification.
What Documents Do I Need?
There is different information you will need to provide for you to apply for a VA loan, and this is also in line with your current position. Veterans will be required to provide a DD Form 212, while active service individuals will provide a signed statement of service which must contain the following:
- Your Full Name
- Date of Birth
- Social Security Number
- Duty Start Date
- Lost Time (if any)
- Name of Command Providing the Details
For National Guard or Reserve members, and also surviving spouses, the requirements may be different. You can access more details through the VA’s entitlement site, or contact a qualified lender.
In addition, if you’re seeking a VA loan COE, you can get it by applying through your eBenefits portal online or apply via your lender.
How is a VA Loan Entitlement Estimated?
If you have full entitlement, you don’t have a loan limit, so you don’t need to work yourself estimating how much entitlement is available to use. You can request as much as your lender offers without a downpayment.
On the contrary, if you have used part of your entitlement and you need to know your balance, you will have to determine how much you’re currently using. Recall that the VA will pay up to 25%of your loan. So to ascertain the amount you have used out of your entitlement, just multiply your current loan amount by 0.25.
Current loan amount x 0.25 = Entitlement already used.
In addition, you will need to figure out your country’s conforming loan limit. Previously, it was $548,250, but as of 2022, the limit is at $647,200 and may be higher in expensive areas.
How Can You Use a VA Bonus Entitlement?
Bonus Entitlement can help you secure a more lush and expensive home. However, it can also use for the following:
- Purchase a New Home With a Past Foreclosure: You can use your VA Bonus Entitlement for a new home in the future. Your past foreclosure doesn’t hinder you as long as two years have already passed since the foreclosure.
- Purchase a Second Home With VA Financing: Suppose you are transferred to another region or military base with no prior notice, you may certainly want to use your VA home loan benefits to purchase a new home. With a bonus entitlement, you can purchase a new home with no down payment. Hence, you don’t have to worry about seeking a buyer for your current home.
How Does the Loan Entitlement Step Fit Into the Whole VA Loan Process?
Firstly, you should note that ascertaining your loan entitlement helps in determining the amount of loan you are eligible for and how much consideration your lender will place in approving your loan.
If you have a loan you’re still repaying or you default on a previous VA loan, or you’ve paid but are still, in possession of the home you bought with the loan, you will be having a reduced entitlement. This implies that the guaranty on your loan is limited to the conforming limit after deducting your current entitlement.
On the other hand, if you have a full entitlement, which occurs when you have never received a VA mortgage loan or you have completely paid the previous VA loan and sold the house. You will be entitled to borrow above the basic entitlement of $144,000 without a downpayment and conforming limits. Furthermore, the VA will guarantee 25% of the loan received.
How Can You Restore Your VA Entitlement?
It’s essential you know how to restore your VA entitlement since it affects how much a loan can be borrowed. This process will require you to fill out the VA Form 26-1880 to restore your VA entitlement.
You will be required to restore your eligibility when:
- You have sold your home but your eligibility is yet to be restored
- You are receiving equity with a VA cash-out refinance.
- You have paid off the VA loan on a different home you still own.
How to Choose the Best Lender to Help You Through This Process
To easily get a hand on the working and functioning process needed to acquire a VA loan, you need the assistance of a trusted, experienced, and proficient lender.
At Security American Mortgage, we specialize in assisting you to go through the VA loan process with ease. We pride ourselves in disbursing affordable mortgages to our active service members, veterans, and their families. Contact us to communicate with our designated agent and let’s walk you through getting your VA loan.
Conclusion
The VA loan entitlement has aided many veterans and military personnel to own a place they can call their home. This has been one of the ways the US government is giving back to these honorable men for their service to the state. If you are a veteran, active service member, or spouse /family of a recognized service member who died in the line of active duty, you may be eligible for a VA loan entitlement. Contact us for further clarifications and inquiries. We look forward to helping you figure out the next step in securing your home.
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