How Does a VA Loan Entitlement Get Calculated?

You can use a VA loan to buy or refinance your home.

You can use a VA loan to buy or refinance your home.

The Department of Veterans Affairs partners with lenders to offer home mortgages to current and former members of the military. You don't have to make a down payment on a VA loan, because the VA itself guarantees a portion of the mortgage. Your VA entitlement is the amount of money the VA agrees to guarantee. The size of the entitlement is based on factors such as the price and the location of your home.

Eligibility

You could potentially qualify for a VA loan if you are a current or former member of the Armed Services or the Coast Guard. Eligibility is tied to your time in the military and different rules apply to people who served in various wars and conflicts. You can also qualify for a VA loan as the surviving spouse of a member of the military. The loans are available through banks and commercial lenders, but you can't apply for a loan until you've received a Certificate of Eligibility from the VA. This document tells your lender whether you qualify and it also details the size of your entitlement.

Entitlement

As of 2012, the basic VA loan entitlement is $36,000. This means that the VA will cover $36,000 of your lender's losses if you default on your mortgage. If your loan amount exceeds $144,000, then your maximum entitlement is equal to 25 percent of the loan amount up to certain limits that are set on a county-by-county basis. For most of the country the county limit is $417,000, meaning your entitlement cannot exceed $104,250.

High Cost Areas

Certain counties are designated as high-cost areas and the VA entitlement limits are higher in these areas since it's more expensive to buy a home. In parts of Alaska and California, the VA county limit is $625,000, meaning the VA is on the hook for up to $156,250 of your loan. In Honolulu, the VA will guarantee up to $173,937, on a loan balance of up to $695,750. Lenders can write VA loans in excess of these limits, but the VA guarantee cannot exceed limits that are based on these county-by-county loan maximums. However, if you get a $1 million loan in Honolulu, the VA will only guarantee $173,937, of the balance rather than 25 percent of the loan amount.

Second-Time Borrower

If you previously financed a home with a VA loan, you can qualify for another one if you have paid off the loan and sold the property. You can also restore your entitlement if you sell the home to another qualified veteran and that individual agrees to assume or take on your mortgage. If you have paid off your mortgage but still own the home, then you can take out a new VA loan on the property. You can do this only once. This means you can't keep refinancing your VA loan every time the interest rates drop.

 

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