Understanding VA Loan Entitlement
Your VA loan entitlement is the amount the VA is willing to pay your lender if you are unable to repay your loan. This is usually 25% of your loan amount.
Your COE has an entitlement code, which shows your lender how you earned your entitlement. It will also show your base amount of $36,000. The 25% rule means that if your base entitlement amount is $36,000, the VA will guarantee 25% of a loan up to $144,000. This does not mean that your loan amount must be $144,000 or less. It can be higher, and that just means that you will be using your bonus entitlement. (Your lender will have their own qualifications to meet in determining your loan amount! With a few exceptions below, the VA does not set its own loan limits.)
Bonus entitlement begins when your loan exceeds $144,000. If you fully qualify, the VA will cover 25% of your loan amount, even if it exceeds $144,000. If you have a reduced entitlement because you have already used some of it, the VA will guarantee up to 25% of your county’s conforming loan limit. The conforming loan limit is the maximum amount of a mortgage that Fannie Mae or Freddie Mac would guarantee if it were a conforming loan.
Use of your full rights
If you have full usage rights, great! This indicates that you are a first-time VA loan user or have fully repaid a previous VA loan. That means you have this total amount of $36,000. Because there is no limit to the number of times you can use your VA loan benefit, each time you repay a VA loan, that $36,000 is restored.
Use of a partial right
You can always use your partial or reduced entitlement to take out another VA loan. Your entitlement is reduced if you currently have a VA loan that you are still repaying, if you have paid off your loan in full but still own the home that you used a previous VA loan for and have not requested restoration of rights, or if you have defaulted on a previous VA loan. Your COE will indicate your reduced entitlement.
If you have partial entitlement, the VA will guarantee the lesser of the following:
- 25% of loan amount
- 25% of county-compliant loan limit less any used entitlement that has not been restored
Using a partial entitlement means that the VA will only guarantee your loan up to the conforming loan limit, minus the entitlement you are using in your current situation. You can always borrow more than you’re entitled to (again, depending on your lender’s qualifications), but you’ll likely have a down payment to make up the difference.
Calculation of your entitlement
Let’s see how to calculate your remaining VA entitlement:
- Multiply your original loan amount by 0.25. This is equivalent to the entitlement you have already used. For example, let’s say your original loan amount was $300,000.
Right you used: 300,000 x 0.25 = $75,000
- Look at your county’s conforming loan limit. The maximum fee is 25% of the county-compliant loan limit. For most of the country, the limit in 2022 is $647,200. It is higher in high cost areas. Let’s say you live in a county where the limit is $647,200.
Maximum eligibility: 647,200 x 0.25 = $161,800
- Now, to calculate your remaining VA entitlement, you will take the maximum entitlement and subtract the entitlement you have already used. This will give you the amount the VA will guarantee on your new loan without you having to make a down payment.
Your remaining entitlement: 161,800-75,000 = $86,800
Now that you have calculated your remaining entitlement, you can calculate the loan amount the VA will guarantee without down payment. You would multiply your remaining entitlement by 4, so with our example numbers, that would be 86,800 x 4 = $347,200. This is the maximum amount you can borrow without a down payment.
We know there’s a lot of math here, so you can always count on our home loan experts to review your situation.