VA loan entitlement is one of the trickier aspects of the VA home loan, but it’s helpful to understand how both types of VA entitlement, basic and bonus, can affect the amount of home you can afford with no down payment.
An experienced VA loan lender will be able to guide you through the process, but it may be beneficial to understand VA loan entitlement while you’re going through the homebuying journey.
VA loan bonus entitlement will come into play when you have a home loan over $144,000.
VA loan entitlement is how much the Department of Veterans Affairs will guarantee of a borrower’s mortgage in the event they default on their home loan. VA loan entitlement generally covers 25% of the total loan amount.
There are two types of VA loan entitlement: Basic and bonus, which is sometimes referred to as second-tier entitlement. Your Certificate of Eligibility will show your basic VA loan entitlement of $36,000, which guarantees homes up to $144,000. The secondary layer of entitlement kicks in for loan amounts above that figure.
This guarantee does not represent a borrowing gap, however, and is just in place as a protection for VA lenders. In fact, there is technically no limit on how much you can borrow with a VA loan.
Qualified Veterans can borrow as much as a lender will offer, all without the need for a down payment. But veterans without their full VA loan entitlement can run into down payment requirements.
Bonus entitlement is tied to the loan limit in your county. In most counties, that limit is $726,200, which creates this secondary layer of bonus entitlement.
If you look at your Certificate of Eligibility (COE), you won’t see this second-tier entitlement listed anywhere, but don’t worry, all VA-eligible borrowers will qualify for bonus entitlement.
You don’t really need to worry about entitlement if you’re using your VA loan benefit for the first time. But for additional uses, some of your VA loan entitlement will be tied up in your original VA loan if you haven’t repaid it in full.
You use at least a portion of your entitlement when you buy a home with a VA loan. The amount is typically a quarter of the loan amount, which reflects the VA’s 25% guaranty.
Let’s say you purchased a home three years ago for $300,000 and used $75,000 of your VA entitlement, and you’re looking to use your VA loan benefit to purchase a second home.
The maximum entitlement for most counties in the country is currently $181,550, which is a quarter of the standard VA loan limit ($726,200).
Here's how VA lenders determine your remaining entitlement and potential down payment needs:
If you’ve used the VA loan before and haven’t fully paid it off, you may have less entitlement than you’ll need to purchase a home with $0 down. If you want to buy a home that costs more than your current VA entitlement allows, you’ll typically have to provide a down payment.
Let’s continue our earlier example where the max purchase price with $0 down is $426,200 but we want to buy a home that costs $500,000.
Here’s how we calculate the required down payment:
If you’re not wanting to make a down payment with your VA loan, there might be a couple of different ways you can restore your VA loan entitlement. Veterans selling their current VA-backed property and buying a new home can restore their entitlement easily after paying off their loan.
Borrowers who have paid off their VA loan but want to keep their current home can apply for a one-time restoration of entitlement, which allows you to keep your current property and buy a new primary residence.
For veterans who defaulted on a previous VA loan, the only way to restore that lost entitlement is to repay that loss to the VA.
At the end of the day, understanding VA loan entitlement is necessary, but can also be confusing. An experienced VA lender will guide you through the process, and help ensure you’re making the right financial decisions for you and your unique situation.