What is VA loan entitlement in regards to homeownership?

When you're exploring the opportunities that come with a VA loan, you may come across some terms you won't typically hear when looking into other types of mortgages and home financing. 

 This blog post will explore the different VA loan entitlement benefit levels and how they're applied to give veterans and other military professionals a leg up when considering homeownership. 

Note: This article is part of a series. Earlier this month, we looked at the nuts and bolts of a VA loan. In future blog posts, we'll touch on whether using a VA loan is a one-and-done kind of thing (it's not) and what kind of closing costs you can expect with a VA-backed home loan or refinance. 

What is VA loan entitlement?

The Department of Veterans Affairs (VA) has, through the VA home loan program, been helping active-duty service members, veterans and military families become homeowners for decades. But the VA does not actually fulfill the loan. Borrowers still need to apply for mortgages and refinances through banks and other private lenders. Instead, the VA “guarantees” a portion of an eligible borrower's loan. This guaranteed amount is referred to as the VA loan entitlement.

When guaranteeing a loan, the VA is promising that if the borrower stops making payments (aka “defaults”), the lender is guaranteed to be repaid a certain amount. The VA guarantee eliminates a portion of the risk the lender is taking on by making this loan. In general, lenders who offer VA loans will look at a borrower's entitlement amount and approve a loan for up to four times without requiring them to make a down payment. In other words, if a VA entitlement is, say, $100,000, a qualified borrower could be approved for up to $400,000 without having to put even a penny down. 

One thing to consider is that having a VA entitlement does not guarantee that financing will be approved. Like every other home loan, a lender will assess a prospective borrower's credit history, income and debt in relation to savings, retirement and investment accounts.

Are there limits to how much you can borrow with a VA loan?

In the recent past, full entitlement had limits on loans over $144,000. But as of 2020, if you have full VA entitlement, you won't have a VA loan limit. 

A VA entitlement is simply the maximum amount that the government will pay to a lender if the borrower defaults on the loan. As a prospective homeowner, you can borrow as much money as your lender is willing to give you: the VA-backed home loans program doesn't limit how much can be borrowed to finance a home. 

However, your situation may be different in that you may have to provide a down payment if you are looking to borrow more than four times your VA entitlement amount. Think of it this way: your VA entitlement plus any down payment you make, must equal at least 25% of the home's purchase price.

Do I have VA entitlement in full?

You'll need to check with your local Veterans Affairs office but, in general, you have full entitlement if you are a veteran, active-duty member or reservist (who meets service eligibility timeframes) or a surviving spouse, and you can confirm that at least one of the following is true.

• • You have never used your VA home loan benefit
  • You once owned a home financed through a VA loan, but have since sold the property and paid the loan off in full, thereby completely restoring your VA entitlement.
  • You once owned a home financed through a VA loan, experienced a foreclosure or short sale, and have since repaid the VA, thereby restoring your VA entitlement in full.

What about unused VA loan entitlement benefits?

It should be noted that borrowers cannot use VA loans to purchase second homes as investment properties, regardless of how much entitlement benefit remains. 

But there are situations where a buyer can have more than one VA loan at the same time. This might be useful when an active duty family is deployed elsewhere, such as in the case of a permanent change of station (PCS). 

If the deployed military family doesn't wish to sell their first home outright but needs to buy one to live in at the new place of deployment, a new primary residence purchase may be possible. The entitlement tied up in the first house would be untouchable, but any remaining entitlement benefit could be applied to purchasing a new home as long as the new home is then considered the primary residence. 

Can entitlement be reused or restored? 

The VA loan program is not a one-time benefit. You can use it multiple times throughout your life, but there is a limit. 

Entitlement can be used a second time (or more) when a VA homeowner sells his/her home and pays off the mortgage entirely, putting the full entitlement amount back into play. This is called entitlement restoration. 

However, if the homeowner pays off the loan but still retains ownership of the house — or if the home is refinanced by VA loan refinancing — the entitlement amount attached to the home remains off-limits. It's not available for use at this time.

Like everything else, there is an exception to this “must-sell” rule. It's a complicated procedure, but you can request a one-time entitlement benefit restoration from the Veterans Association. We'll get into that in more detail in a future blog post.

Does the VA entitlement benefit last forever? 

That would be nice. Unfortunately, it's possible to permanently lose your VA loan entitlement. For example, if the homeowner defaults on the VA loan and the lender forecloses on the property and sells it for less than what was owed, the VA has to reimburse the lender the full 25% initially guaranteed.

The VA's payment to the lender would be deducted from the homeowner's total entitlement. This portion of the entitlement would no longer be accessible unless the homeowner repaid the VA the losses. And that aforementioned one-time restoration of entitlement benefit? Not applicable in this scenario.

We're ready to serve you and your family

Now that you know a little bit more about what VA entitlement is and how it's used to make VA loans an attractive option, you should see if you meet the VA loan eligibility requirements. 

To learn more about how VA loans help military families, talk to us. Movement Mortgage can answer your questions about eligibility and help you make the right decision. Find a loan officer in your area to get started.