What is VA Loan Entitlement?
VA loan entitlement is the amount of money veterans can use towards a home loan. If you have a VA loan and want to know how much entitlement you have, this article will explain what it means, why it's essential, and how you can get your entitlement amount.
VA Loan Entitlement Explained
VA loan entitlement is the amount of money that a veteran can borrow from their VA loan. The Department of Veterans Affairs (VA) uses a formula based on the borrower's military service to calculate how much entitlement they have.
Currently, VA loan borrowers with full entitlement don’t have a limit on how much they can borrow to qualify for a zero down payment. For full-entitlement borrowers, the VA guarantees up to 25% of the loan amount on loans of any size. The caveat? You can't borrow as much money as you want. You can only borrow what you qualify for through your lender based on income, debts, credit history, etc.
What if your entitlement amount is reduced? In this case, you also don’t have a limit to how much you can borrow, but you may need to make a down payment if you exceed your entitlement amount.
Why Does VA Loan Entitlement Matter?
- VA loan entitlement is the amount of money that a veteran or surviving family member is eligible to borrow from the VA.
- It’s based on income, monthly mortgage payments, and other factors such as credit history and property value.
If you want to get a VA loan, knowing how much money you can afford is essential so that you don’t end up with debt problems down the road.
How Is The VA Entitlement Amount Calculated?
As we mentioned earlier, the VA guarantees up to 25% of your loan amount. To calculate how much of your entitlement you’ve used, you must multiply your loan amount by 0.25, i.e. 25%.
Loan amount × 0.25 = entitlement used
You’ll also need to determine something called your "county’s conforming loan limit." As of this year, the loan limit is $647,200. In high-cost areas, it may be higher.
How Can Homebuyers Calculate The Maximum Purchasing Price?
The maximum purchasing price for a VA loan entitlement is calculated using the area's median home value and the loan amount used to qualify for that entitlement. This can be difficult to understand, so let's use an example.
Say your area has a median home value of $300,000, and you have a VA loan entitlement of $200,000. The most you could purchase is $300,000 because that's what your entitlement allows you to finance. If, instead of having a $200k entitlement, your entitlement was only $170k—you'd still be able to purchase up to $300k in property value since it would still be within your offered limit (the smaller number).
In conclusion, your VA loan entitlement amount represents how much of your loan the VA will guarantee. However, entitlement does not guarantee borrowers an unlimited supply of money. No matter how much entitlement you have available, buyers can only borrow as much as a lender is willing to give them.
Remember, Military Home Spot Lending is an approved VA lender specializing in VA Home Loans. Learn more about our VA loans here.