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Lesson 10.1

Explaining Entitlement

Chris Birk | Author of "The Book on VA Loans"

Lifetime Benefit

Editor's note: The whiteboard video above reflects the VA's 2016 loan limits. We will update the video soon. The article below reflects the VA's 2017 loan limits and related VA loan entitlement calculations.

The VA loan program isn’t a one-time benefit. Once you earn this, it’s yours for life.

Veterans who use a VA loan to purchase a home can absolutely seek another, either to refinance their current mortgage or buy again. What many buyers and other stakeholders may not know is that it’s even possible to have more than one VA loan at the same time.

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Even veterans who’ve lost a VA loan to foreclosure can look to purchase again using this long-cherished benefit program.

So why is there so much confusion and misunderstanding out there about reusing the VA loan program?

A lot has to do with the technical nature of VA loan entitlement, which is the actual dollar amount the VA promises to repay in the event a borrower defaults. Entitlement can be a confusing subject even for people who work in the mortgage industry.

The bottom line is VA buyers can use this program over and over again. Let’s take a closer look.

VA Loan Entitlement

The VA loan program is a benefit created as part of the original GI Bill. The government provides a financial guaranty on every VA loan. The guaranty is a promise to repay the lender a portion of the loan – typically 25 percent – in the event a VA borrower defaults.

The VA guaranty is reflected in a dollar amount known as “entitlement.” Your amount of entitlement in part determines how much you could potentially borrow before having to factor in a down payment. Your Certificate of Eligibility details your available VA loan entitlement.

There are two layers of entitlement, a basic and a bonus, or secondary, level. The basic entitlement is $36,000. For borrowers in most parts of the country, there’s an additional, second tier of $70,025. Add those together and you get $106,025. That’s the maximum entitlement for VA buyers in all but the country’s most expensive housing markets.

Because the VA typically guarantees a quarter of the loan, a borrower with full entitlement in most of the country can borrow up to $424,100 ($106,025 x 4) before having to factor in a down payment. But veterans purchasing in what the VA deems high-cost counties can tap into even more entitlement.

The 2017 loan limits cap out at $636,150 in the continental U.S and at $721,050 in Honolulu County, Hawaii. Qualified borrowers in these counties can obtain up to those amounts without having to make a down payment. These limits don’t represent a cap on how much you can borrow – only on how high you can go before the need for a down payment.

Buyers in these high-cost counties have more VA loan entitlement at their disposal. Instead of the typical $106,025 for full entitlement ($424,100 x 25 percent), a borrower in Honolulu has $180,262 in available entitlement ($721,050 x 25 percent). That can be a huge benefit if you already have a VA-backed loan or if you’ve lost one to foreclosure.

Entitlement Example

Here’s a better look at how it works on the individual level. Let’s say a VA buyer with full entitlement purchases a home for $200,000 with no money down. Given the VA’s guaranty, you’ve utilized one-quarter of your entitlement for this property, which comes out to $50,000 ($200,000 x 25 percent). In most counties, that leaves you with $56,025 in remaining entitlement ($106,025 – 50,000).

That remaining entitlement is how qualified borrowers can look to have two or more VA loans at the same time. It’s also how VA buyers who lost a home to foreclosure can purchase again using the program. We’ll look at each of those situations separately a little later.

One important thing to know is your Certificate of Eligibility will not reflect your secondary layer of entitlement. That means you may be able to obtain another VA home loan even if your COE indicates $0 entitlement.

First, let’s talk about reusing your VA loan benefits in the context of selling your current home and buying a new one.