If you are a veteran with an honorable discharge and who served at least 181 days during peacetime (90 days during wartime), you may be eligible for VA entitlement. In other words, you may be eligible for a VA loan with no down payment. This could make it easier for you to own a home. But just what is the standard entitlement and how much do you get?
The Standard Entitlement
Your Certificate of Entitlement will show two numbers – the basic or standard entitlement and your bonus entitlement. The basic entitlement entitles you to a loan amount of $144,000 with no down payment. The VA guarantees 25% of this amount or $36,000.
This means you must find a home for $144,000 or less if you don’t want to make a down payment. Luckily, most veterans also have access to bonus entitlement, which helps them buy a home for more than $144,000 with no down payment.
The Bonus Entitlement
The name ‘bonus entitlement’ makes it sound like you have to do something special to get the additional entitlement. The good news is that you don’t have to do anything – you get the additional entitlement automatically.
Typically, the bonus entitlement is equal to the difference between the national conforming limit and the standard benefit of $144,000. Today, the national conforming limit is $484,350, so the bonus entitlement is equal to $85,087.
Each veteran has access to this full amount as long as they have full entitlement. Before you can get a loan for the full amount, though, you must prove that you can afford the loan. The VA lender will qualify you for the loan to determine if this is the case.
Borrowing More Than Entitlement
It’s important to know that you may be able to borrow more than the amount of your entitlement. The VA doesn’t have maximum loan amounts you must follow. If you need to borrow more and you qualify for it, you may be able to do so, there’s just one catch – you have to make a down payment.
Your entitlement signifies how much the VA will guaranty for you. This means if you default on your loan, the VA will pay the lender back a portion of the amount they lost. Typically, this means 25%. So if you default on a $200,000 loan, the VA would pay the lender back $50,000. This is often more than anyone would put down on the home, so the lender still comes out ahead.
If you borrow more than your entitlement, you’ll have to put down 25% of the difference between your entitlement and the purchase price of the home. If your loan amount isn’t much higher than your entitlement, you won’t have to put down much, but if there’s a big difference, you could be looking at a sizeable down payment.
You Need a Certificate of Entitlement
It’s important to understand that you have to prove to a lender that you have entitlement. The only way to do this is with your Certificate of Entitlement. You get your COE from the VA. You can request a copy yourself by going through your VA ePortal or you can ask your lender to get it for you. Either way, your COE must show that you have enough entitlement to purchase the home in order for a VA lender to give you a VA loan.
The VA doesn’t underwrite or fund the VA loan – it’s all up to the VA lenders. The VA guaranty is what encourages VA lenders to write such loans. The guidelines to qualify for a VA loan are relaxed and make it much easier for veterans to buy a home. Make sure that you shop around to find the lender that will accept your loan qualifications and that will give you the best interest rates and closing costs on your VA loan.