We’re talking specifically about VA entitlement in regards to the VA loan program. We’re going to go into detail about VA entitlement including talking about what it is, what the amount available actually is, the difference between basic entitlement and additional entitlement, and what it all means to you. VA entitlement is an important part of the VA loan program, and is what makes the entire program possible. Understanding VA entitlement is important for you to understand in order to have reasonable expectations of what is possible with the VA loan program.
What It Is
VA entitlement is the amount of money the VA is theoretically willing to pay out to the lender on your behalf if you default on your loan. VA entitlement is a replacement for mortgage insurance and serves essentially the same purpose – to persuade the lender to offer better terms to low-risk borrowers and be willing to take on high-risk borrowers. Every eligible veteran has a certain amount of basic entitlement, which is usually $36,000, unless the veteran has used their entitlement in the past and the VA paid out some of that. $36,000 is not very much when we’re talking about buying houses, so let me explain. The VA usually guarantees 25% of the loan, and the amount the VA guarantees is the amount of money the VA pays if the borrower defaults on the loan. So, with a basic entitlement of $36,000, you can get a VA-guaranteed loan of $144,000. While $144,000 is a more reasonable amount than $36k, it’s still not much at all in most parts of the country. This is why the VA also offers “additional entitlement” to most VA-eligible borrowers.
The nuts and bolts of additional entitlement vs. basic entitlement (like why they’re separated in the first place) don’t make any sense, so all you need to know is that with additional entitlement, you can get a home loan of up to $417,000 in most counties in the US, and higher than that in many places around the nation where the cost of housing is higher than average. Additional entitlement is what allows most borrowers to purchase the home they are looking for. It’s important to remember that having basic entitlement of $36,000 does not automatically qualify you for a VA loan of up to $144,000 – eligibility and qualifying are two different things. You are eligible based on your military service, but whether you qualify is determined by your credit, income, and employment history. Don’t confuse the two.
You Can Re-Use Entitlement
You don’t have to save your VA loan for the home you intend to live in forever; you can use your VA entitlement more than once to get access to all the benefits of the VA loan program for each and every home you buy. There are even many cases where you can have more than one home financed with a VA loan at one time. If you are interested in this possibility, your best bet is to call us and speak with a loan officer to get the details. The ability to re-use entitlement is exciting, but once the entitlement has been used up it’s gone. What does that mean? That means that if you default on your loan or make a VA compromise sale and the VA has to pay out to a loan holder on your behalf, that money comes out of your VA entitlement, and if all of your entitlement has been paid out, you will no longer be eligible for a VA loan. That being said, if only part of your entitlement was paid out, or if you decide to pay the VA back the amount, you can have your entitlement restored and use it again as normal. If you’re in this situation, you may still have enough entitlement to purchase the home you’re interested in and you should definitely speak with a VA-approved lender about your options. You never know what’s available to you until you ask.
The VA entitlement is an essential part of the VA loan program and is what allows you to have access to all the amazing benefits that the VA loan program offers. Hopefully now you have a better understanding of VA entitlement and will be able to keep up with your lender as he or she talks about your VA loan.