As a veteran, you may get two types of entitlement. There is basic entitlement and bonus entitlement.
The good news is that you don’t have to do anything to get that bonus entitlement. It’s not like it’s reserved for only certain veterans. Everyone gets it, but understanding how it works is the key to success with the VA loan program.
Using Your Basic Entitlement
Let’s start with your basic entitlement. The VA automatically provides every borrower with $36,000 entitlement. Because the VA guarantees 25% of a loan amount, that $36,000 translates into a $144,000 loan amount.
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You can buy a home for up to $144,000 and not need a down payment. The VA lender can provide you with 100% financing. That’s great news except it’s hard to find a home for $144,000 in many areas of the United States. This is when the bonus entitlement comes in handy.
Using Bonus Entitlement
If you find a home that costs more than $144,000, you are in luck. The VA provides a guarantee for loans up to the national conforming limit. Today that means $453,100. The difference between the two amounts is your bonus entitlement. The VA will guarantee an additional $77,275 with your bonus entitlement.
This means your total entitlement equals $113,275. Now if you don’t use that entire amount on one home, you may be able to save it up and use it for the future.
Using Your Remaining Entitlement
The VA loan is for use on your owner-occupied property, but did you know that you can move in the future? The VA states that they want to know that you have the ‘intention’ to move into the home as your primary residence. As long as you fulfill that agreement by moving into the home after closing on the VA loan, you made a good faith effort to fulfill the promise.
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If things change down the road and you need to move, you may be able to use your remaining bonus entitlement and still keep the original home. Here’s an example:
John is a veteran and bought a home with his VA benefits for $150,000. This means John used up $37,500 of his entitlement. He still has $75,775 left, which means a $303,100. After three years, John is relocated to another state. He knows he wants to keep his original home because that is where he will retire. John can use his remaining bonus entitlement of $75,775 to score a new VA loan. John buys a $250,000 home and doesn’t put anything down on it because the VA lender can provide 100% financing because he has enough entitlement left.
Now if John decided to buy a $400,000 home, he would have had to make a down payment. Lenders usually require veterans to put down 25% of the difference between the VA guarantee and the total loan amount. In this case, John would have had to put down $24,225. This gives the lender a little cushion since the VA will not provide a guarantee on any amount above the $303,100 loan amount.
Like we said above, all veterans get the bonus entitlement; there isn’t anything special you have to do. The one thing you do have to make sure of, though, is that you qualify for the loan. It doesn’t matter how much entitlement you have available, you still have to be able to prove that you can afford the loan. Luckily, the VA has flexible underwriting guidelines that make it easy for veterans to qualify, but before you get in over your head, make sure you fit those VA guidelines.
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