Hence the beauty of the VA home loan for us veterans. We don’t have to put anything down, because the VA guarantees 25% of the loan. Which to the bank that’s even better than putting 20% down. In addition, because they are insulated from risk by the VA’s guarantee; they don’t require us to pay mortgage insurance.
As long as you have full entitlement, there’s no limit to how much house you can buy with a VA loan. However, if you don’t have full entitlement there’s limitations to how much loan the VA will guarantee.
Years ago $144,000 was considered adequate amount for a veteran to buy a home. Therefore every veterans “entitlement” was set at $36,000 (25% of $144,000). Entitlement is the term for the amount of a loan the VA will guarantee on our behalf.
However, over the years that purchase price of $144,000 has long since proved to be inadequate. Thus we’ve all been extended “bonus eligibility”. The amount of this eligibility changes each year. But it’s not hard to keep track of.
The most commonly used loan product in the country is the conventional mortgage loan (sometimes referred to as “Fannie Mae” or “Freddie Mac” loans).These two organizations set the maximum loan limits for conventional loans. They generally increase this every year, as the cost of homes will typically increase. This amount is referred to as the conforming loan limit.
As of 2021, the conforming loan limit is $548,250 (this is larger in more expensive pockets of the US, and for multi-family properties). The VA merely adopts what the conforming limit is each year. If we are currently using some of our entitlement, our bonus entitlement is equal to whatever it would take to guarantee a loan equal to that of the conforming loan limit.
Example:
• Conforming Loan Limit: $548,250
• Amount Needed to Guarantee 25%: $137,062.50 ($548,250 x .25)
• Veteran Standard Entitlement: $36,000
• Veteran Bonus Entitlement for 2021: $101,062.50 ($137,062.50 - $36,000)
*bonus entitlement is only limited if the veteran is currently using a portion of their entitlement towards another property
But what if I don’t have enough entitlement remaining to cover 25% of the price of the home I want to buy? Easy….you just have to put down what the VA won’t guarantee.
Example:
• Entitlement Currently Being Used: $36,000
• Conforming Loan Limit: $548,250
• Purchase Price: $650,000
• Amount Needed to Guarantee 25%: $162,500 ($650,000 x .25)
• Total Remaining Entitlement: $101,062.50
• Down Payment Required: $61,437.50 ($162,500 - $101,062.50)
It’s really that simple. VA does not care how many times you use the loan benefit. You can get a VA loan as long as you have entitlement. Whenever you have a VA loan, that means you are using a portion of your entitlement (if not all of it).
To restore the entitlement you’ve used, you must do one of the following:
1. Payoff the loan and Apply for a one-time restore of eligibility (stipulations will apply)
2. Sell the house (thus paying of the loan through the sale of the property)
3. Assign the loan to another veteran. This is when your loan is transferred to another qualifying veteran and it now consumes his/her entitlement instead of yours. This is far less common, and much more difficult to do these days.
So this leads to the next obvious question I get all the time. “Ed, I’m only using a small portion of my entitlement. I have plenty left over. So can I get another VA home loan, and keep my existing home?”
Be sure to watch my video, “Can I have two VA loans at the same time”, and I’ll answer that question and unpack all the details.
