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Lesson 4.2

VA Loan Eligibility & Entitlement

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

Eligibility Requirements

Being eligible for a VA loan and ultimately being able to get one are two different things. But you can’t be in position to take advantage of this historic program’s big-time benefits if you don’t meet the VA’s service requirements.

Potential homebuyers are usually eligible for a VA home loan if they’ve met one of the following service requirements:

  • 90 consecutive days of active duty service during war time
  • 181 consecutive days of active duty service during peacetime
  • 6 years of service in the Reserves or National Guard
  • You’re the surviving spouse of a veteran killed in the line of duty or who died of a service-connected disability

Those are the broad, basic outlines for VA loan eligibility. There are other service circumstances and situations that can lead to being eligible for this benefit. Only the VA can determine whether you meet the requirements and have access to this loan program.

Certificate of Eligibility

Even if you’re positive you meet the eligibility requirements, there’s only one way to be sure – the Certificate of Eligibility. This critical VA document formally attests to your ability to utilize the VA loan benefit. You can’t get a VA home loan without one.

  • Take advantage of your hard-earned benefit

But you don’t actually need your COE in hand to start the loan process. In fact, you don’t even need to know if you’re eligible for a VA loan.

Eligibility is something lenders will help you assess at the outset. They’ll also look to obtain your COE on your behalf during the loan preapproval process. To be sure, you’re more than welcome to get your Certificate of Eligibility on your own. Many borrowers can get it through the VA’s eBenefits portal. You can even fill out a VA form and get your COE in the mail.

The bottom line is don’t let questions about your eligibility keep you from talking to a loan officer about your VA loan benefits.

VA Loan Entitlement

The idea of VA loan entitlement can be one of the most confusing aspects of this incredible benefit program. Let’s take a closer look.

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

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 $68,250. Add those together and you get $104,250. That’s the maximum entitlement for VA buyers in all but the country’s most expensive housing markets.

Because the VA guarantees a quarter of the loan, a borrower with full entitlement can borrow up to $417,000 ($104,250 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. That allows qualified borrowers to purchase well above $417,000 without having to make a down payment. These loan limits can change annually.

It’s worth noting that VA loan limits don’t represent a cap on how much you can borrow. Veterans who can afford larger loans can seek what’s known as “jumbo” financing. These limits just represent how high you can go before the need for a down payment, which must be at least 25 percent of the difference between your entitlement cap and the purchase price.

Here’s a better look at how VA loan entitlement works on the individual level.

Entitlement Example

Let’s say you purchase a home for $200,000 with no money down in a county with the standard VA loan limit of $417,000. 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 places, that leaves you with $54,250 in remaining entitlement ($104,250 – 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.

Continuing our example, let’s say you get PCS orders a couple years after buying the $200,000 home.

Rather than sell the home, you decide to hold onto the property as a rental and buy again at your new duty station in a non-high-cost county (you’d have even more entitlement available if you were buying in a high-cost county). With your remaining entitlement of $54,250, you could look at getting another VA loan to purchase up to $217,000 ($54,250 x 4) before needing to factor in a down payment.

Again, you could look to buy more house than that. But buying above that $217,000 cap would require a down payment of 25 percent of the difference. For example, if you wanted to buy a $250,000 home, you’d be on the hook for a $8,250 down payment [($250,000 - 217,000) x 25 percent].

That could still wind up being a great deal compared to conventional and FHA financing, which require minimum 5 percent and 3.5 percent down payments, respectively. The $8,250 down payment in our example represents 3.3 percent of the purchase price. And, unlike FHA and conventional buyers, VA buyers wouldn’t pay mortgage insurance fees on top of that.

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.