Understanding The Va Loan Entitlement
Your VA loan entitlement is the amount the VA is willing to pay your lender if you default on your loan. Its generally 25% of your loan amount.
Your COE has an entitlement code, which shows your lender how you earned your entitlement. Itll also show your basic entitlement amount of $36,000. The 25% rule means that if your basic entitlement amount is $36,000, the VA will guarantee 25% of a loan up to $144,000. This doesnt mean your loan amount has to be $144,000 or less. It can be higher, and it just means youll use your bonus entitlement.
Bonus entitlement kicks in when your loan is over $144,000. If you have full entitlement, the VA will cover 25% of your loan amount, even if its more than $144,000. If youve got reduced entitlement because youve already used some of it, the VA will guarantee up to 25% of your countys conforming loan limit. The conforming loan limit is the maximum dollar amount of a mortgage that Fannie Mae or Freddie Mac would guarantee if this was a conforming loan.
Section : Va Loan Benefits
VA loans are the most powerful home loan option on the market for so many military families. These loans are made by private lenders like Veterans United and backed by the Department of Veterans Affairs.
VA loans have been helping veterans, service members and military families become homeowners for more than 75 years, thanks in large part to some big-time benefits.
Heres a look at four big ones:
- $0 down paymentIts tough to overstate how huge this advantage is for military buyers. FHA loans require 3.5 percent down, while conventional loans often require at least 5 percent. On a $250,000 loan, that translates to an $8,750 down payment for an FHA loan and a $12,500 down payment for a conventional loan. VA buyers dont have to spend years scraping together that kind of upfront cost.
- No mortgage insuranceFHA, conventional and other mortgages often come with expensive monthly mortgage insurance unless you can make a substantial down payment. That extra cost limits your buying power.
- Relaxed credit guidelinesVA loans have more flexible credit requirements than other loan types. You dont need top-tier credit to qualify, and its possible to bounce back faster with a VA loan after a bankruptcy or foreclosure than with other loan types. Having less-than-perfect credit is not a deal-breaker.
A good mortgage lender can help you evaluate your options and get a clear understanding of what all loan types youre eligible for and what might be the best fit for you.
Restoring Your Va Mortgage Entitlement
Borrowers can go about restoring their VA mortgage entitlement in a few different ways, and for a variety of reasons.
If you want to restore your VA mortgage benefits, you can apply for a one-time restoration of entitlement. Through this process, you wont be required to sell the property. However, you will need to repay the loan in full.
The form to kick off this process is the VA Form 26-1880. If you have questions about the document, dont hesitate to reach out to your lender.
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What If My Coe Says My Entitlement Is $0
If you have an existing VA loan worth more than $144,000, youll have used up all your entitlement. Your new COE will show your entitlement as $0. Dont worry. You can reinstate your full entitlement by selling your home and using the proceeds to redeem your mortgage .
This is common. And lenders are used to it.
You dont have to wait until youve redeemed your mortgage before you apply for a new one, no matter what your COE says. You can usually close on your purchase on the same day you close on your sale. So moving with a VA loan is as straightforward as doing so with any other mortgage.
Two Va Home Loans At The Same Time
Many VA borrowers who buy ordinary family homes use way less than their full entitlement. And some can use whats leftover to acquire a second VA loan.
If youre posted away from your existing home in a permanent change of station , you can typically apply to use your remaining entitlement to purchase a different property close to where youre moving. And you can then rent out your existing home.
Sometimes, the remaining entitlement isnt quite enough to cover the loan required. But if you can scrape together a modest down payment, you can use that to bridge the gap.
The math can get complicated with this. If you think you may want to apply, you should talk to a VA mortgage loan specialist early on in the process.
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The Two Ways You Can Use A Va Loan For Investment Property
There are many ways to purchase an investment property. You could use loans designed specifically for investors, or you could, if you have the funds, purchase the property outright.
But there is one strategy that often gets overlooked: VA loans.
While not meant for investments, VA loans can be used for this type of purchase, and you may find that these loans are perfect for your overall investment strategy.
Loan Assumed By Another Veteran
Veterans can use a VA loan again if they are able to assume a loan of another veteran. Similar to conventional loan programs, a homebuyer can take over the terms of a previous mortgage as long as they qualify. In order to qualify, a veteran will have to have sufficient income, savings and a satisfactory credit rating. This can be a great way to get a home loan on more affordable terms for some veterans.
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Va Restoration Of Entitlement
Qualified borrowers applying for a VA loan for a new home may need to restore their entitlement through what is called a one-time restoration of entitlement.
These entitlement benefits may need to be restored if the veteran does not want to sell his or her home but is looking to pay off their first loan, for instance, said Jason Gelios, a Realtor in southeast Michigan who specializes in VA loan offers.
To restore your VA entitlement, complete VA Form 26-1880 and provide the Department of Veterans Affairs with a copy of your final executed closing disclosure from the sale of your home that involves a VA loan. The VA will then process the full restoration of your entitlement.
However, say you are looking to sell a home financed by a VA loan and purchase another property using a VA loan at the same time,â Killinger said. âIn this scenario, your lender can work with you and document the fact that your full entitlement is in place by requesting a copy of the executed closing disclosure from the sale of your previous home and placing it in the new loan file.â
Restore Your Va Entitlement By Refinancing
One option is to refinance the mortgage on your existing home to a non-VA mortgage like a conventional loan or one backed by the FHA or USDA. You could then use your existing home as an investment property and buy a different one using your restored VA entitlement.
Remember that if you use a VA loan to purchase a home, you must live in it as your primary residence .
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Va Loan Paid Restore Entitlement Using Va Form 26
If you sell the house financed with a VA loan and pay the mortgage off you can get another VA loan. When this is done, you should complete VA Form 26-1880 to restore entitlement, the same form used to obtain Certificate of Eligibility , you can also apply online. Surviving spouses use VA Form 26-1817. When entitlement is restored you can apply for another VA loan.
The Lifetime Advantages Of The Va Loan Program
A VA Guaranteed Home Loan has many advantages over a convention loan. The VA loan program provides Veterans, active duty personnel, and reservists with a benefit that can be used throughout your lifetime.
- No down payment required for loans up to specific county loan limits
- Find information related to your county here:
- No maximum loan amount
- No mortgage insurance
- No lender fees or points required
- Refinance to a lower interest rate with an Interest Rate Reduction Refinancing Loan , requiring no appraisal or income verification in most cases
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How To Use Remaining Va Entitlement For Additional Loans
The VA loan program is intended to help military service members buy primary residences, so its very unusual that youll be able to take out two VA loans for two homes at once.
But there are some limited circumstances under which you might be allowed to do this. The main one is when someone is posted through a permanent change of station . If that happens to you, you might be able to buy a home near the base to which youre posted and keep your original one, both with VA loans.
If you have enough remaining entitlement leftover after your first VA loan, then you may be able to get a second VA loan for the second home purchase.
Suppose you bought a modest home 10 years ago for $72,000. Thats half of the $144,000 that the $36,000 guarantee on your COE entitles you to. And you could use the other half now.
Of course, its harder today though certainly not impossible to find decent homes in that price bracket. But you can bridge the difference between the home price and your maximum VA loan using savings.
What You Need To Know When Someone Assumes Your Va Loan
VA loans are assumable which means someone buying your home can take over a great interest rate in addition to buying your home. The important thing to remember is your entitlement wont be restored unless the buyer is an eligible veteran who agrees to substitute his or her eligibility for yours. However, the VA doesnt restrict who can buy your home or assume your current VA mortgage. If you decide to sell a house to a non-military buyer, even if they take over responsibility for the loan payment through an approved loan assumption, some of your VA entitlement will be tied up in the property until the loan is paid in full.
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Q: Only A Portion Of My Eligibility Is Available At This Time Because My Prior Loan Has Not Been Paid In Full Even Though I Dont Own The Property Anymore Can I Still Obtain A Va Guaranteed Home Loan
A: Yes, depending on the circumstances. If a veteran has already used a portion of his or her eligibility and the used portion cannot yet be restored, any partial remaining eligibility would be available for use. The veteran would have to discuss with a lender whether the remaining balance would be sufficient for the loan amount sought and whether any down payment would be required.
Can My Dad Use His Va Loan To Buy Me A House
The joint VA loan program allows Veterans and/or active-duty military members to use a joint borrower who is not a spouse or other Veteran. Most lenders won t allow these kinds of loans and will block Veterans from buying a home with a sister, brother, mother, father, son, daughter, or someone who is unrelated.
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The Benefits Of Va Loans For An Investment Property
If other options are available, why would an investor consider using a VA loan for an investment property? There are many reasons, but most notably is the fact that you can utilize these loans with 0% down. While youll still need money for closing costs and fees, you can buy an investment property with literally no down payment. Not everyone will qualify, but it is an attractive option.
With a VA loan, you can also avoid paying mortgage insurance, which is often charged on many other mortgage options. While the cost may be counter-balanced with other fees, this can bring significant savings to your overall investment portfolio.
Its possible to use multiple VA loans at one time. So if you purchase a property, live in it for a certain time, and convert it to a full investment, you can then use another VA loan for your next property either a home you will live in for decades or another potential investment property. This is another significant advantage to using VA loans for investment purchases.
Get Other People To Pay Your Mortgage
House hacking is the concept of renting out space to other people who pay you rent to live there. One easy approach is to buy a primary residence that is a duplex or triplex. Another strategy is to buy a house with extra bedrooms and take on roommates who pay rent to live in your extra space. You will need to check on the legality of this arrangement in the town where you live.
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When You Might Need A Second Va Loan
There are a few situations where you might need a second VA loan:
- If youre a service member who receives permanent change of station orders and you have to move to a new duty station. This would allow you to have two primary residences.
- If youre a previous VA loan borrowers who lost your home due to foreclosure, you can still use your VA benefit again after waiting a certain amount of time after your foreclosure. This is usually two years. However, if youre in financial hardship, you may qualify for financing sooner. Each lenders guidelines may be different.
- A VA loan assumption can restore your VA loan entitlement to full. An assumption means that someone else takes over your loan, assuming the interest rate, monthly payments and loan balance. This person must meet VA loan requirements themselves and be willing to transfer their own VA loan benefits, so your entitlement is restored.
- You can apply to have your VA loan entitlement restored in full once if you pay off your VA loan, but dont sell your home. This would allow you to purchase another home with a VA loan to be your primary residence, while keeping the other property to serve as a vacation home or rental property.
Does The Va Funding Fee Increase With Subsequent Use
The first time you use your VA entitlement, youll typically pay a one-time funding fee of 2.3% of the value of your loan, assuming you have a zero or very small down payment. So if you borrow $100,000, you have to pay $2,300 on closing. Alternatively, you can often add your funding fee to your loan amount and pay it down over the lifetime of your mortgage.
Though that might seem like a lot of money, its substantially less than what you would likely pay in private mortgage insurance for other low-down-payment loan types.
Some service members are exempt from the funding fee, including veterans with certain service-related disabilities and surviving spouses.
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What Kind Of Funding Fee Will I Pay
The government charges a funding fee on each VA loan in order to keep the program afloat. This fee is a percentage of the loan amount and can vary based on the loan type, your military service, and how many times you’ve used the program.
Here how the VA funding fee generally breaks down for second-time users:
- 0%-4% down payment: 3.6%
- 5%-9% down payment: 1.65%
- 10% or larger down payment: 1.4%
VA borrowers with a service-connected disability are exempt from paying the VA funding fee.
What Are The Benefits Of A Va Loan
The VA doesnt issue mortgages, it guarantees them, setting requirements on the sort of mortgages it will accept and relying on approved lenders to issue the loans. The VA takes on risk associated with the mortgages it backs, and the lower risk to the lenders who issue VA is passed along to buyers, often meaning slightly lower interest rates compared to conventional loans.
VA home loan applicants with poor credit histories, including bankruptcy and foreclosure, can often qualify for VA loans more easily than if they sought conventional financing. The VA wont count a bankruptcy or foreclosure against you after two years. Conventional mortgage lenders often require that you wait up to four years following a foreclosure to apply for a new mortgage.
VA home loans benefits are substantial for those who qualify. Here are some of the ways VA and conventional mortgages differ:
VA loans are guaranteed against default, so they pose less risk to mortgage lenders. In addition to charging fewer closing costs a VA requirement lenders often offer lower mortgage interest rates to VA loan customers. The difference between conventionally available interest rates and VA rates can vary over time and from lender to lender.
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What Is My Entitlement
Your Entitlement is the amount of money the VA is willing to guarantee on your behalf to a private mortgage lender. The VA offers a basic entitlement of $36,000 to each Veteran. A lender is usually willing to loan you up to four times that amount or $144,000. If something happens and you are unable to pay back the loan, the VA will pay 25% of your loan to the lender as a guarantee. However, in many places across the country, its difficult to find a suitable home for $144,000. To ease this problem, the VA decided to link the amount it guarantees to the conforming loan limit for conventional financing as stated by the Federal Housing Agency . Doing that increased the amount available to veterans looking to buy a home. In most counties across the country, the VA will back 25% of your home loan, up to a maximum loan amount of $484,350 . In other words, if you finance a $250,000 home in a county with a limit of $484,350, you are only using a little over 50% of your entitlement.
The VA loan entitlement is yours for the duration of your life. It never expires, and you can use all of it or just some of it. You can even borrow more than the loan limit of $484,350, but most lenders will require some sort of down payment since the VA only backs 25% of the loan limit. Being able to use your benefit over and over is based on how much of your entitlement is available to you, and the reasons behind your wanting to use it again.
