Posted on: July 9, 2015
VA loans are hands-down the best program on the market today. The VA guarantees a VA-backed mortgage based upon a qualified veteran’s entitlement. When a borrower evaluates a possible VA loan, the first step is to obtain the veteran’s certificate of eligibility, sometimes referred to as the COE.
The COE will contain the veteran’s the entitlement amount. The basic entitlement is currently $36,000 and the VA will guarantee any loan up to four times the entitlement, or $144,000. For loan amounts above $144,000, the VA will guarantee a zero-down VA loan up to $417,000, and higher in certain high cost areas.
In some cases, a veteran can use their entitlement more than once for qualified purposes including a refinance or another home purchase.
To use the VA entitlement more than once, the entitlement must be restored or an unused portion of the entitlement must be used.
When obtaining a VA loan for the first time, the lender obtains the COE. Because the entitlement has never been used, the entitlement amount states $36,000.
However, there are some instances where the veteran wishes to use their VA home loan benefit more than once. Let’s imagine that the borrower wishes to buy a bigger home with a new VA loan. What are the veteran’s options?
To restore the VA entitlement back to its original $36,000 amount, the current VA loan must be paid off and closed. This can happen if the home is sold and the VA loan is paid off in full.
If the VA loan is assumed by the buyers, the VA loan is not retired, but assigned to the buyers who qualified for the VA loan assumption. In this instance, entitlement can’t be restored and the veteran must use another method of financing for the next home purchase.
Another example of non-restoration occurs when the veteran decides to keep his current home and does not pay off the existing VA loan.
You can restore VA entitlement by refinancing the existing VA loan into a new non-VA loan. There is a one-time entitlement restoration available for veterans who pay off their VA loan in full, but retain ownership of the property.
Keep in mind that the entitlement restoration can only be completed once. This is VA’s way to make sure that VA home loan financing is not used to acquire many properties.
Sometimes a veteran has remaining entitlement after buying a home. This unused entitlement can be used for another home purchase.
We stated that the veteran’s standard entitlement is $36,000. This is a representative number, meaning it indicates the veteran has full entitlement.
But the veteran’s real entitlement is $104,250. This is 25% of the standard county loan limit of $417,000. (The veteran actually has an even bigger entitlement when buying a home in a county with higher limits.)
For example, a veteran buys a home for $100,000. He uses only $25,000 of his $104,250 entitlement. He has $79,250 in remaining entitlement.
Later, the veteran decides to move out and buy another home while keeping the $100,000 property. He can qualify for a new VA mortgage if the loan does not exceed four times his remaining entitlement of $79,250, or $317,000.
According to VA’s benefit website, this is a formula that can be used to spell out the same idea.
$417,000 x 25% = $104,250
$104,250 – $25,000 (entitlement already used) = $79,250
$79,250 x 4 = $317,000
It is also important to highlight the VA funding fee when speaking of getting a VA loan more than one time. The VA funding fee is a VA-required charge expressed as a percentage of the loan amount and can change based upon the number of times a veteran has used the entitlement.
For example, the standard VA funding fee for a purchase is currently 2.15% of the loan amount and can be rolled into the loan instead of paid out of pocket. If the sales price is $100,000 the funding fee is $2,150 for a final VA loan amount of $102,150. See what your funding fee will be by contacting one of our VA home loan experts.
Subsequently, if the veteran buys another home with a VA home loan, or the existing loan is refinanced with a VA cash-out loan, the funding fee jumps to 3.30%. The higher funding fee is often called a subsequent use fee. The higher fee does not apply when refinancing with a VA streamline refinance where the funding fee is typically 0.50%.
See our Funding Fee page for more information about the VA funding fee.
How do I request restoration from the VA?
By completing VA form 26-1880, you can request restoration direct from the VA. Or, your lender is usually able to quickly contact VA and request entitlement restoration for you. Contact one of our VA home loan professionals for assistance.
Does my credit score affect how much I can borrow? No. Maximum loan amounts are determined by the amount of unused entitlement. Your credit score may affect whether you qualify for a VA home loan, however.
Can I use my entitlement to help a family member buy a home? Only if you intend to occupy the property along with your relative as your primary residence. VA loans are only issued to the eligible veteran for their owner-occupied property.
I have a service-connected disability; does that have any effect on my entitlement? No, your amount is the same as any other qualified veteran or service member. However, you may be exempt from paying the funding fee if the VA has declared your disability to be service-related.
Can I transfer my entitlement to someone else? No, you may not. The only time entitlements can be transferred from one person to another is to the surviving spouse of a veteran who died as a result of service-related injuries.
How does my entitlement affect my loan approval? It doesn’t. Your loan is approved based upon a set of lending guidelines established by the VA, based on your income, assets, credit profile, and other factors. Your entitlement is only used to determine eligibility and maximum loan amount.
If you have more questions, or are ready to start the VA home loan qualification process, contact us today at 866-437-7385, or simply complete our no obligation contact form. We look forward to speaking with you.