VA Bonus Entitlment
A common question from veteran borrowers is, “Am I able to get more than one loan under the VA Guaranty Program?” As long as you have entitlement, the answer is yes! VA loans can be used many times, and for each loan the amount the VA guarantees under each program, is your entitlement that is applied. Entitlement amount allotted will differ from borrower to borrower. However, as a general rule of thumb though, a veteran can typically obtain a VA loan up to 4 times the amount of their entitlement.
Under VA loan entitlements, there are 2 types for borrowers to explore, with the first being the basic. On average the basic entitlement amount is $36,000, and your amount can be found on your COE. This basic amount can be used on a loan up to $144,000. What then comes as a surprise to many is that they are entitled to more, for loans over 144,000 and this amount is their bonus entitlement. Bonus entitlement can be up to at least $68,250. To calculate bonus entitlement, first take the Freddie Mac conforming loan threshold for the county you reside in. Next, multiply that amount by 25% and subtract the $36,000 of your basic entitlement.
Although not unheard of, a borrower can have more than 1 VA loan at once, so it can become confusing when looking at VA loans together. A unique circumstance such as a veteran having bonus entitlement available, but having already used their basic entitlement allotted is one case. For example, if a borrower currently has a loan for $144,000, but has their $68,250 bonus entitlement available, they could qualify for a loan over $144,000 up to $273,000.
When loans exceed $417,000 in some counties, the overall bonus entitlement is higher compared to the $68,250. In these situations though, the veteran would have to prove their ability to afford and pay this amount.
Overall, it’s easier to calculate one’s guaranty amount when they have one loan. However, multiple loans bring forth a small challenge when calculating entitlement amount for a borrower. In addition to entitlement, other factors such as county loan limits, the purchase price, as well as credit qualification and income are considered. Lastly, determining if a borrower can use entitlement can depend if they have used the VA Home Loan Guaranty Program. As long as the borrower paid a previous VA loan in full, their entitlement can be renewed. If the VA loan suffered foreclosure, the losses must be repaid in order for entitlement to be restored.
The following sample calculations are intended to help VA-eligible borrowers understand how entitlements are figured for multiple VA mortgages:
1) Borrower is using $36,000 of his entitlement on a current VA loan and is getting another VA loan for $470,000. The loan limit in his county is $625,000.
$625,000 x 25% = $156,250 maximum VA guaranty
$156,250 – $36,000 = $120,250 available entitlement
$120,250 x 4 = $481,000 maximum loan amount for this borrower
The proposed loan amount is under $481,000, the borrower will need entitlement of $117,500 which is the full 25% VA Guaranty on his loan of $470,000, and a down payment should not be required.
2) Veteran has used $105,000 of her entitlement on a prior loan which has been paid off and entitlement restored. She is borrowing $395,000 with a new VA loan where the county limit is $815,000.
$815,000 x 25% = $203,750 maximum VA guaranty
$395,000 x 25% = $98,750 entitlement on this loan
This borrower’s full entitlement has been restored, and the proposed loan amount of $395,000 should get full 25% VA Guaranty with entitlement to spare, and no down payment is required.
3) A veteran is using $27,500 of his entitlement on a current loan, and is purchasing a home for $320,000 where the county limit is $417,000.
$417,000 x 25% = $104,250 maximum guaranty
$104,250 – $27,500 = $76,750 entitlement available
$76,750 / $320,000 = 23.98% VA Guaranty on this loan
Since VA’s Guaranty will be less than 25% of the loan amount, a down payment will be needed to meet lender requirements.
In certain cases, a subsequent VA loan is not possible. Here are two examples where the borrower would be better off using a program other than that of the VA:
1) A veteran is using $36,000 of her entitlement on a current loan, and needs to borrow $120,000 for another home purchase where the county limit is $417,000.
Since the loan amount is not over $144,000, this veteran’s bonus entitlement cannot be used.
2) A veteran already has a VA loan of $800,000 where the county limit is $729,750. He wants another VA mortgage for $350,000.
$729,750 x 25% = $182,437.50 Maximum Guaranty
$800,000 x 25% = $200,000 exceeds entitlement and down payment was required
This borrower has no entitlement remaining; therefore, he is not eligible for a subsequent VA loan.
When a borrower exceeds his or her entitlement, a down payment is usually necessary. This is a situation where it would make sense for a borrower to explore financing options other than the VA Program.