When it comes to VA loans, “entitlement” refers to the maximum guarantee the VA provides to a lender for the eligible VA borrower. It is not the maximum loan amount the veteran can receive. VA loan entitlement can be a bit confusing as it has two parts: the basic entitlement and the bonus or secondary entitlement. Here’s how loan entitlement works:
VA Loan Entitlement: Basic and Secondary Entitlement Explained
If you have never used the VA loan program, you have the basic and bonus (secondary) entitlement. The $36,000 figure you see on your Certificate of Eligibility (COE) refers to the basic entitlement. This is the VA’s maximum guarantee for a mortgage up to $144,000.
Bonus entitlement is also available for up to an additional $68,250 (in certain high-cost counties). This amount, called the secondary entitlement, is used for VA mortgages between $144,000 and the conforming loan limit, which is usually $417,000.
As a first-time VA borrower, you will begin with enough entitlement for a loan of up to $417,000.
How Entitlement is Used
When a veteran uses his VA loan entitlement, he can use all or some of it. The VA guarantees one-quarter of the full loan amount. This means borrowers usually use one-quarter of their entitlement to purchase a home. For example, with a standard $200,000 VA mortgage that isn’t in a high-cost county, the veteran will use $50,000 of entitlement. He or she will still have $54,250 entitlement remaining ($104,250 basic and secondary entitlement – $50,000 entitlement used).
Loan entitlement is not a single-use benefit. An eligible service member can reuse their entitlement for the rest of their life. Even if a veteran has used all his entitlement to buy a home, VA loan entitlement can be fully restored when the loan is paid in full. This may be done by selling the home and paying off the mortgage. They also may pay off the mortgage and, using a one-time restoration benefit, keep the property as a second home or rental property.
It’s even possible to have two VA mortgages at the same time. This usually happens when a service member buys a home and has a PCS (Permanent Change of Station). The service member can choose to keep the primary home to rent it out. In this case, the borrower may have enough entitlement remaining to buy a new home without a down payment.
What Happens if a Veteran Doesn’t Have Enough Entitlement?
It’s somewhat common for a veteran to find he does not have enough entitlement remaining after buying a first home with the VA entitlement. This is especially the case if the first VA loan was lost to foreclosure. The good news is the secondary entitlement can be used to allow veterans who have gone through foreclosure on a VA property to buy again. The veteran’s COE will explain how much entitlement is remaining.
In some cases, the borrower does not have enough entitlement remaining for a new VA loan. It’s still possible to get a VA mortgage with a down payment, often with less down than is necessary with other loan programs.
Borrowers who are unsure of their remaining entitlement can speak with a VA mortgage specialist. They will be able to explain more about using the VA entitlement for the first, second, or even third time.