VA loan entitlement can be a confusing subject. Here we break down VA loan entitlement, the different types and how that affects your maximum loan amount.
Veterans who are eligible for a VA loan have VA loan entitlement, which is basically a dollar amount the VA promises to repay back to a lender in the event you default on your mortgage.
This sounds quite simple, but in reality the concept of VA entitlement is often a confusing one.
You can think of it as something you're entitled to given your service to our nation. This is certainly a hard-earned and well-deserved benefit. But that's not entirely what it means, at least in practical terms.
VA loan entitlement is the dollar amount the Department of Veterans Affairs will guarantee on each VA home loan and helps determine how much a veteran can borrow before needing a down payment. VA loan entitlement is typically either $36,000 or 25% of the loan amount up to the conforming loan limit.
There are two VA loan entitlement types: basic and secondary entitlement; with basic, or primary, entitlement being $36,000.
Typically the VA pledges to repay up to 25 percent of the loan amount. However, if we do the math, it’s easy to see that $36,000 x 4 = $144,000.
That would seem to be the maximum loan amount for most borrowers and likely isn’t enough to purchase a good-size home in most parts of the country.
So, to stay competitive and ensure veterans across the country have access to homeownership, the VA started to link its guaranty amounts with the conforming loan limit for conventional financing, which is $484,350, thereby creating a second layer of entitlement.
Remember, the VA promises to cover a quarter of the loan amount in most cases.
A quarter of $484,350 is $121,087. In order to meet that mark, the VA essentially created a secondary entitlement amount ($121,087 - 36,000 = $85,087). That additional layer of entitlement comes into play anytime a veteran purchases a home for more than $144,000.
It's important to understand that there's no maximum amount on a VA loan. You can get as much as the lender is willing to give you. But the VA only extends its guaranty so far.
Some of the country's most expensive areas have loan limits that exceed the conforming level of $484,350. Think parts of California, New York, Virginia, Hawaii and a handful of other states. In these places even $484,350 may not be enough to ensure a VA borrower can compete in the market.
The VA has higher loan limits in those high-cost counties that can range up to $726,525. In those cases, the VA limits its guaranty to whichever is less:
The VA loan limits are subject to change every year, reference this loan limit calculator to see your 2019-2020 loan limits.
The concept of secondary entitlement is what allows qualified veterans to have two VA loans in play at the same time.
I've written about this topic recently, so if you'd like to learn more about having two VA loans at once, check out second-tier entitlement and getting a second VA loan. Just know there are additional restrictions and requirements with having coinciding VA loans.
You can also check out our Comprehensive VA Home Loan Guide for additional resources.
A Veterans United Home Loans specialist can help you determine your entitlement. Talk to a loan specialist at 855-870-8845 or start your home loan quote today.