Qualifying for a VA loan starts long before you submit your paystubs and W-2s to the lender. It starts with your VA entitlement. A lender needs to know that you are eligible for the VA program long before they can start qualifying you for the program.
Find out if you are eligible for a VA loan.
The VA program offers 100% financing for veterans of the military and a select few others. If you don’t meet the necessary service requirements or you are not a surviving spouse of a military member that died during active duty, you’ll have to turn to other government-backed programs for your mortgage financing.
What is VA Entitlement?
Basically, VA entitlement means that you served adequate time in the military. How much is adequate? See the chart below.
- Members of the regular military must serve at least 90 consecutive days during wartime or 181 consecutive days during peacetime
- Members of the Reserves or National Guard must serve at least 6 years
- Surviving spouses of those that died in the military or because of an injury or illness occurringduring their time in the military may also be eligible
Proving Your Entitlement
The only way to prove your entitlement to a VA loan is to obtain your Certificate of Eligibility. This certificate shows that you are eligible for the VA program. It also shows how much entitlement you have available. If you’ve never used your benefit, you’ll have full entitlement. If you have already used some of it, the certificate will notate the remaining balance.
You can obtain your COE a few ways:
- The easiest way is to have your lender request the certificate. They can usually obtain it within a few seconds, helping you move on with the loan process faster
- If you are not working with a lender yet, you can request the certificate online in the eBenefits portal. You should get the certificate within a matter of minutes if the VA has enough information on your service.
- If you prefer to do things through the mail, you can mail away for the certificate by using VA Form 26-1880.
How Much Entitlement do You Get?
Each veteran with adequate service time receives enough entitlement to secure a loan up to the national conforming limit of $453,100. This does not mean that you qualify for that amount, but if you do, the VA will guarantee up to $453,100 for you.
The VA guarantees 25% of the amount that you borrow. This is how lenders can provide you with a 100% loan and also have flexible underwriting guidelines. If you were to borrow more than the $453,100 and you have full entitlement, you would be required to put down a minimum of 25% of the difference between the purchase price and the $453,100. This way the lender has the security of having the down payment should you default.
What if you Use Your Entitlement?
If you use some of your entitlement, but not all of it, you may be able to use it in the future. Some veterans buy a home, pay it off, and then move. If they want to keep the current home, the entitlement they used to buy it stays tied to the home. The remaining entitlement, though, may be used to buy another property. You must get the VA’s approval to use the remaining entitlement while keeping your existing property, though. The VA usually offers this benefit as a one-time exception.
If you use your remaining entitlement, but it’s not enough to cover the full purchase price, you will need to make a 25% down payment of the difference between the purchase price and the remaining entitlement.
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For example, if you used $250,000 of your entitlement, you have $203,100 left. If you want to use the entitlement and buy another home that is worth $300,000, you would have to make a down payment. That down payment would cost you $24,225. Some veterans still feel the VA loan is the best option because of its flexibleunderwriting guidelines and low interest rates. They make the down payment and use their remaining entitlement.
Qualifying for the VA Loan
Once you prove to the lender that you are eligible for the VA loan, you must prove you qualify for it. This means proving the following;
- Average of a 620 credit score
- A maximum 41% – 43% debt ratio (total debt ratio)
- Adequate monthly residual income after paying your bills
- No previous defaults on federal loans
- Stable employment and income
Each lender has their own requirements, but these are the requirements the average lender requires. Shopping around will help you find the lender with the requirements that you can qualify for and that meets your needs.
Can the VA entitlement provide the veteran with cash?
No, the entitlement is strictly an amount the VA will guarantee for a veteran should he borrow money for a VA loan. It’s the VA’s hope that borrowers don’t default and the VA doesn’t have to pay the amount they guaranteed out. If the borrower does default, though, the VA will pay the lender the guarantee.
Can you reuse entitlement?
Yes, but you have to make two things happen. First, you must pay the loan off in full. Second, you must sell the home. You can then petition the VA for reinstatement of your VA entitlement. If you paid your loan as agreed and you no longer own the home, you should be able to have yourentitlement reinstated.
Do you lose entitlement if you lose your home in foreclosure?
Yes, if you lose your home to a foreclosure, you cannot have the entitlement reinstated. If you have any entitlement you did not use for the home you lost in the foreclosure, you may be able to use it for a new VA loan after the foreclosure waiting period.
What happens to the VA entitlement if another veteran assumes the loan?
If the veteran assuming the loan has availableentitlement, you can request that the VA transfers the entitlement from your name to the veteran’s that assumed the loan. This may allow you to reuse your entitlement. If a non-veteran assumes the loan, though, the entitlement remains tied to the home until the home is sold and the loan paid off.
Do you get full entitlement if you buy a home with a non-veteran?
You can get full entitlement when buying with a non-veteran only if the non-veteran is your spouse. If you buy a home with anyone other than a spouse and they are not a veteran, the VA will only guarantee 50% of the loan. This may mean that the lender will require a 25% down payment on the other 50% of the loan in order to make up for the lack of guarantee.
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