Deciphering the VA Lender’s Handbook Chapter 7 Part 4
In the last article, we went into depth on how guaranty and entitlement are calculated on a veteran/nonveteran joint loan. A veteran/nonveteran situation presents some unique difficulties in calculating guaranty because the nonveteran is not entitled to any guaranty, so only a portion of the loan is eligible for the VA guarantee. In fact, it is technically a portion of a portion since the VA only guarantees a certain percentage of the portion that the VA-eligible borrower is accountable for. Calculating the guaranty on a two veteran joint loan is far simpler, and is, in fact, just an extension of how the guaranty on a standard VA loan is calculated. As a reminder, a two veteran joint loan is defined as any joint loan that has two or more veterans signed on it and no nonveterans. If a nonveteran is signing on the loan, the guaranty is calculated according to the previous article.
In a two veteran joint loan, the potential maximum guaranty is calculated based off of the total loan amount (since all signers on the loan are VA-eligible. The Handbook provides a short table that shows the steps that a lender is to take when calculating the guaranty. The steps are fairly simple and straightforward. Below is the table:
|1||Calculate the maximum potential guaranty on the total loan amount.
Use the maximum guaranty table in chapter 3.
|2||VA will guarantee the lesser of:
If the loan amount is greater than $144,000, additional entitlement may be added to each veteran’s entitlement.
|3||VA will make charges to the veterans’ available entitlement which total the maximum guaranty arrived at in Step 1, or the total of their available entitlement if less than the maximum potential guaranty.
VA will divide the entitlement charges equally between the veterans if possible, or, if only unequal entitlement is available, unequal charges may be made with the veteran’s written agreement.
Exception: VA will make the entitlement charge for husband and wife veterans according to their preference.
As you can read in step 2, if the borrowers do not have enough entitlement to cover the maximum potential guaranty on the loan amount, the VA will only guaranty up to the amount of combined entitlement that the borrowers have. For loans greater than 144,000, additional entitlement may be added to allow the veterans to qualify for the loan. As with veteran/nonveteran joint loans, the Handbook provides a table of examples to show how the guaranty might come out in different loan scenarios. The table is below:
|Veterans and Available Entitlement||Total Loan Amount||Maximum Potential Guaranty||Total Entitlement Charge Per Vet|
|Vet 1 $36,000Vet 2 $36,000||$100,000||$36,000||$18,000$18,000|
|Vet 1 $23,500Vet 2 $ 8,500||$ 80,000||$32,000||$23,500$ 8,500|
|Vet 1 $36,000Vet 2 $36,000||$300,000||$75,000||$37,500$37,500|
|Vet 1 $15,000Vet 2 $20,000||$203,000||$50,750||$25,375$25,375|
|Vet 1 $0Vet 2 $0Vet 3 $ 6,500||$300,000||$75,000||$25,000$25,000$25,000|
As you can see from the examples, having more than one VA-eligible borrower use their entitlement on a loan does not necessarily increase the amount of guaranty on the loan, but it will affect the amount of entitlement that is used from each borrower. It’s smart to plan far ahead in advance when you are planning on doing a joint VA loan with other VA-eligible borrowers. That way, you can make sure you don’t get an unpleasant surprise when the terms you are offered are not nearly as favorable as you were hoping for. By keeping up-to-date on current interest rates, how much guaranty you would be eligible for, and any changes to the VA loan program, you can mitigate the risk of trying for a loan that you will not get approved for.