How is VA Loan Entitlement Calculated?

 

As a Veteran, you’ll hear the phrase “VA loan entitlement” used often when you start exploring your military benefits. A simple way to define entitlement is the maximum amount of guarantee that the VA will provide to a lender on a Veteran’s behalf. 

A common misconception is that entitlement is the maximum loan amount you can get. Not true! Your entitlement amount is just a fraction of your zero-down buying power. With just a little research, you can find out why VA loan entitlement matters and calculate your own entitlement amount. 

Understanding VA Loan Entitlement

One of the most appealing aspects of the VA home loan program is that you can get a home loan with zero down. On top of that, the rates are competitive and there’s no need for private mortgage insurance. This is made possible by the VA guaranty. 

The words “entitlement” and “guaranty” essentially refer to the same funds, but “entitlement” is the amount that you are currently eligible for, while “guaranty” is the amount that the Department of Veterans Affairs actually guarantees for an individual loan. This amount is usually 25% of the loan balance. 

The VA guaranty gives lenders confidence, that in the event of a borrower default, the VA will cover the loss. As much as VA home loan lenders want to get Veterans the housing they need, without the VA guaranty, it would be impossible to offer such attractive loan terms and rates. Your entitlements are just one way that our country says, “thank you for your service.” The right VA home loan lender helps you make the most of your military benefits. 

Calculating your VA Loan Entitlement

Before we dive into how you can calculate your VA Loan Entitlement, it’s important to take a look at the latest changes to the VA loan limits. Thanks to the Blue Water Navy Veterans Act, Veterans with full entitlement can now be eligible for the VA guaranty, regardless of the loan amount. This means that the zero-down buying power is greatly increased for Veterans who can qualify for higher loan amounts. Essentially, if you have full entitlement and a lender’s approval, you can get your need for a down payment waived, no matter how high a home price is. 

How do you know if you have full entitlement? From your Certificate of Eligibility (COE). This document has an entitlement code that tells a lender about the nature of your military service. Your lender can help you gather the necessary evidence and obtain your COE quickly and easily. Notable entitlement codes include Code 05, which is an indication that you’ve used a VA home loan before and have since had your entitlement restored, and Code 10, which covers Veterans who enlisted between August 1990 and now. 

Although loan limits are lifted for those with full entitlement, those who have already purchased a home with a VA loan, or who have defaulted on a VA loan in the past, may have diminished entitlement. In these cases, VA loan entitlement is calculated based on what the limit was when the first VA loan was taken out. If you’re in this situation, there are ways to restore your entitlement to full, including through refinancing. 

Now that we’ve defined entitlement in a few different ways, we’ll dive into the nuts and bolts of how it’s calculated. First off, the basic entitlement amount is $36,000. Calculated as 25% of the loan amount, this would serve as a VA guaranty for a $144,000 property. Obviously, this isn’t big enough of a loan to cover most of today’s home prices. To address this, the VA also provides a bonus entitlement, which follows the conforming loan limit laid out by the Federal Government. This number goes up each year and can vary based on the cost-of-living in your county. For more information, check out the VA’s guide to loan limits. 

Your Own VA Loan Entitlement Calculator

The best way to find out exactly where your loan entitlement stands is to talk to a VA loan expert. They can help you determine your zero-down buying power and can request your Certificate of Eligibility in seconds. You can also view VA loan entitlement calculation examples from the VA to see some of the most common situations.

Whether you have full or diminished VA loan entitlement, it’s important to work with a lender who understands your situation and can deliver positive results. At SoCal VA Homes, we are 100% committed to helping Veterans achieve their goals of homeownership. That means we take the time to advocate on your behalf and overcome the challenges that face Veterans in the housing market. Find out more about what sets us apart.