VA Loans: How They Work and Qualifications for 2022
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Understanding the VA Loan Entitlement

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Each day you serve in the military counts toward VA entitlement for a home loan backed by the U.S. Department of Veterans Affairs (VA). Understanding your VA entitlement may open the door to homeownership with a VA home loan and no down payment.

What is VA entitlement?

VA entitlement is the dollar amount the VA will repay a lender if you default, or fail to repay your mortgage. If you meet minimum loan requirements, most lenders will loan you up to four times the amount of your basic entitlement without requiring a down payment.

VA entitlement is tied to the VA guaranty, which works like mortgage insurance on other loan types. The lender is repaid for a portion of the loan if they have to foreclose. However, unlike mortgage insurance for conventional loans or those backed by the Federal Housing Administration (FHA), the VA guaranty isn’t added to your monthly payment or charged as a lump sum. Instead, the maximum guaranty is covered by the VA based on your loan amount and available VA entitlement.

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

  • 90 consecutive days during wartime
  • 181 days during peacetime
  • More than six years of service in the National Guard or Reserve

Additionally, spouses of veterans who died in the line of duty or from a service-connected disability may meet the eligibility requirements.

How to determine your VA entitlement

The easiest way to check your VA entitlement is to request an online certificate of eligibility (COE). Have a copy of your DD Form 214, or Report of Separation, handy before you apply. You should’ve received one after your discharge from the military; it contains important information about your dates of service.

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

Different types of VA entitlement

The VA offers two types of entitlement: basic and bonus. Here’s a closer look at what each involves.

Basic entitlement

As an eligible veteran, basic entitlement guarantees the VA will pay your lender the lesser of up to $36,000 or 25% of your VA loan amount if you default. However, that doesn’t mean you can only borrow $36,000. Most lenders allow you to borrow four times that amount, up to $144,000, without requiring a down payment.

Bonus entitlement

VA bonus entitlement gives you borrowing power above the $144,000 basic entitlement limit. Also called second-tier entitlement, it allows you to buy a more expensive home.

One big change in 2020: VA loans are no longer restricted to conforming loan limits established by the Federal Housing Finance Agency. That means you could borrow beyond the current $510,400 conforming loan limit, giving you an edge in a costlier housing market.

One caveat: If you currently have a VA loan, you need to pay it off in order to restore your full VA entitlement, otherwise, you’ll be restricted to borrowing within the conforming loan limit for your area.

How to use the VA bonus entitlement

Besides buying a more expensive home, a bonus entitlement can help you:

  • Buy a second home with VA financing. If you’re suddenly transferred to another military base, you may want to buy a new home using your VA home loan benefits. A bonus entitlement can help you buy your new home with a zero-down loan, and without having to sell your current home first.
  • Buy a new home with a foreclosure in your past. A past VA loan foreclosure may not prevent you from buying a new home with your VA benefits in the future. As long as two years have passed since the foreclosure, you can use your remaining VA bonus entitlement to buy a new home.

Recent changes to how the VA bonus entitlement works

The Blue Water Navy Vietnam Veterans Act of 2019 changed how lenders calculate the guaranty for any VA home loan closed after Jan. 1, 2020. The changes apply only if you’re buying, building or refinancing a home for more than $144,000. However, you can still buy a home using your basic VA entitlement up to $144,000.

Under the new VA bonus entitlement guidelines, service members can take out a VA loan with no down payment to buy a home that exceeds the $765,600 upper conforming loan limit for high-cost areas, which wasn’t the case before.

VA bonus entitlement example

A veteran with full entitlement wants to buy a $1.2 million home in a high-cost neighborhood where the upper limit is $765,600. Today, the VA guaranty covers 25% of the total $1.2 million loan amount. In other words, the VA is guaranteeing it will repay the lender up to $300,000 if the borrower defaults. As a result, the borrower doesn’t have to make a down payment.

Previously, the VA’s guaranty would cover only $191,400, or 25% of the upper limit of $765,600 instead of the total loan amount. That means the veteran would’ve made a $108,600 down payment, or 25% of the difference between the total loan amount and the high-cost loan limit ($1,200,000-$765,600=$434,400).

Keep in mind that having full entitlement doesn’t mean you’ll be approved for a VA loan. Lenders set their own down payment, credit, income and loan limit guidelines. Check with your loan officer if you’re buying a higher-priced home to ensure you meet their borrowing requirements.

How 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:

  1. 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.
  2. 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.
  3. 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.

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