Understanding entitlement is one of the most confusing aspects of getting a VA home loan. However, if you break it down to its basics, the concept is actually quite simple.
Many veterans believe it refers to the total dollar amount they’re eligible for receiving on each loan. However, at its very core, entitlement refers to the maximum guarantee amount that the VA provides to your home loan lender. In other words, it’s how much the VA guarantees they’ll cover should a veteran or service member default on the mortgage.
A basic entitlement for every veteran starts at $36,000. But here’s where many borrowers make a mistake: This isn’t all the entitlement available to you. Because the VA guarantees 25% of the loan amount, you have to multiply that number by 4 to get your entitlement amount. So in this case, $36,000 x 4 = $144,000. This amount is referred to as basic entitlement.
More often than not, this is more than enough money to buy a new home. However, some veterans may find this barely scratches the surface of what they need. At that point, their lender would help them apply for additional entitlement (sometimes called “bonus” or Tier 2). This amount is used to help cover the gap between the basic entitlement and the conforming limit for home loans which is currently at $417,000.
In some counties, the conforming limit is higher. The additional entitlement will adjust to meet that limit. To calculate the additional entitlement, you subtract the basic entitlement of $144,000 from the VA loan limit and then multiply that answer by 25%. Keep in mind the VA loan limits adjust every year, so make sure you’re looking at the most current figures.
Another confusing fact about VA loan entitlement is that veterans believe you can only use your benefits once. This couldn’t be further from the truth. If you’ve used a VA loan before, you may have exhausted your entitlement, but it doesn’t prevent you from getting a VA loan over and over again.
To reuse your VA loan benefits, you just have to apply for a restoration of entitlement before applying for a new home loan.
You’re able to apply for a restoration of entitlement if you:
- Have paid off the VA loan in full
- Sell your home and use that money to pay off the VA loan in full
- Have your VA loan assumed by another veteran who uses their entitlement in place of yours
The VA has a “one-time restoration” allowance that will grant you an exception to the rule that you must sell your home. This allows you to keep your home while you apply for a VA loan for another home. But what about residency requirements? Or Occupancy? Once you pay off the first loan in full, there are no restrictions from the VA as to how you use that home. However, once you use this free pass, it’s gone. If you happen to move again in the future and want to use your VA loan benefits, you’ll have to meet the specific requirements before applying for a restoration of entitlement.
Keep in mind you must have your entitlement restored before you can apply for a new VA home loan. This can be done by completing VA Form 26-1880. A qualified Home Loan expert who specializes in VA loans may be able to help you with this process.