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VA Loan Entitlement

What You Need to Know and How to Maximize It

VA loan entitlement is a critical aspect of the VA loan process that every eligible borrower should understand. This entitlement is the amount the Department of Veterans Affairs (VA) guarantees on a VA-backed loan, which impacts the loan amount you can secure without a down payment. In this article, we will discuss the basics of VA loan entitlement, the different types of entitlements, and how you can maximize your entitlement to secure your dream home.

Understanding VA Loan Entitlement

VA loan entitlement is the amount of money the VA guarantees to a lender in case the borrower defaults on the loan. The guarantee encourages lenders to offer favorable loan terms, such as no down payment and competitive interest rates, to eligible veterans and service members. There are two types of VA loan entitlement: basic and bonus (also known as secondary or additional entitlement).

Basic Entitlement

Basic entitlement, often referred to as the "VA Guaranty," is the standard amount of entitlement available to every eligible VA loan borrower. As of 2021, the basic entitlement is set at $36,000, which means the VA guarantees up to 25% of the loan amount, up to $144,000. Keep in mind that the loan limits may change yearly due to fluctuations in the housing market.

Bonus Entitlement

Bonus entitlement, also known as secondary or additional entitlement, comes into play when the borrower needs a loan amount larger than what the basic entitlement can cover. As of 2021, the bonus entitlement is an additional guarantee of up to 25% of the loan amount exceeding $144,000, up to the county loan limit. This extra entitlement allows eligible borrowers to purchase higher-priced homes without a down payment.

The Impact of the Blue Water Navy Vietnam Veterans Act

Before the Blue Water Navy Vietnam Veterans Act of 2019, VA loan borrowers were subject to conforming loan limits set by the Federal Housing Finance Agency (FHFA). However, this legislation removed the conforming loan limits for first-time VA loan borrowers with full entitlement. This change means that borrowers with full entitlement can now secure a VA loan without a down payment, regardless of the loan amount, as long as they meet the lender's credit and income requirements.

Maximizing Your VA Loan Entitlement

To make the most of your VA loan entitlement, follow these tips:

  • Maintain good credit: Lenders are more likely to approve higher loan amounts for borrowers with strong credit scores. Strive to maintain a credit score above 620 to increase your chances of approval.
  • Manage your debt-to-income ratio (DTI): Lenders evaluate your DTI to determine if you can afford the monthly mortgage payments. Aim for a DTI of 41% or lower to improve your eligibility for a larger loan.
  • Shop around for lenders: Not all lenders have the same guidelines and loan limits. Shop around to find a lender willing to approve the loan amount you need.
  • Consider using your bonus entitlement: If you've used your basic entitlement and require a larger loan, explore the option of using your bonus entitlement.
  • Restore your entitlement: If you've previously used your VA loan entitlement, you may be able to restore it by paying off your existing VA loan or selling the property. This restored entitlement can be used to secure another VA loan.

Understanding your VA loan entitlement is crucial to maximizing the benefits of the VA loan program. By being aware of the different types of entitlements and implementing strategies to improve your financial standing, you can make the most of your entitlement and secure a VA loan that best suits your needs.