What is my VA loan entitlement amount? If you are contemplating buying a home with a VA loan, that’s certainly a relevant question. However, recent changes mean that you might need to ask a few more questions to find out what the answer really means for your real estate prospects.
What Is My VA Loan Entitlement Amount?
As the ArmyTimes reports, when the VA home loan program initially launched in 1944, the maximum guaranty offered for loans was just $2,000. Needless to say, the program has been through many changes since then, and it continues to evolve to keep pace with the times. The result is a program with lots of ins and outs that can seem rather complicated to the average person. Understanding your VA loan entitlement amount will help you identify your options and explore the possibilities.
VA Loans and Guarantees
VA loans are underwritten and made by private lenders. The reason they’re called VA loans is that the VA guarantees them. As NerdWallet explains, the VA promises the lenders who issue these loans that it will repay a portion of the loan if the borrower happens to default. This government backing makes extending VA loans less risky and enables the lender to offer more favorable terms to borrowers, like 100-percent financing, competitive interest rates, no mortgage insurance, limited closing costs, and other perks.
Defining Your VA Loan Entitlement Amount
To prove that you’re eligible for a VA loan, one of the first things that you’ll do is request your Certificate of Eligibility (COE) from the VA. Lenders want to see this because it verifies that you are indeed eligible to participate in the VA loan program and because it provides information that they need to process your VA loan application, including your loan entitlement amount. Your loan entitlement amount is the amount of guaranty that you have available to use.
Individuals who haven’t taken out a VA loan before will have their full entitlement left. Meanwhile, borrowers who have used a VA loan to purchase a property in the past and haven’t yet repaid it will have less than the full entitlement listed on their COE, even if their loan was in good standing. Don’t worry: This entitlement can be restored once the loan is paid off.
What is my VA loan entitlement amount? If you’re using a VA loan for the first time, your COE will list your basic entitlement as $36,000. As the VA explains, that isn’t a limit on what you can borrow. Instead, it’s a message for the lender that the VA will pay up to $36,000 if you are approved for a VA loan of up to $144,000 and later default on it. For defaults on larger loans that are approved, the VA will pay up to 25 percent of the loan amount.
Loan Limits: Before and After
As Military Benefits points out, January 1, 2020, brought major changes for VA loan limits, and those changes had many borrowers scrutinizing their VA loan entitlement amounts. Why? Borrowers who had their full entitlement at the beginning of 2020 are no longer subject to loan limits. While they must have sufficient income and resources to secure the loan that they’re seeking, borrowers with full entitlements no longer have to worry about staying below conforming loan limits. The VA will provide a 25-percent guarantee for these loans. However, borrowers who have already used part of their entitlement must play by the old rules. Anyone without full entitlement who takes out a VA loan must stay below the conforming loan limits or make up the difference with a down payment.
What is my VA loan entitlement amount? What’s the best way to secure my Certificate of Eligibility? Can you buy a fixer-upper with a VA loan? Does the VA offer a way to refinance my existing property? When you have questions about the VA loan program, the team at PrimeLending: Manhattan, KS, is happy to help you find the clear, useful answers that you need to make smart decisions. We listen carefully, offer personalized guidance, and use our expertise to ensure that the process moves as smoothly as possible. To learn more about our services, contact us today.