The concept of a VA loan is relatively straightforward. It is a mortgage loan established and guaranteed by the United States Department of Veterans Affairs. Exclusive to active and retired service personnel and their families, the VA loan has significantly lower requirements than conventional loans and is given out only through government-accredited lenders.
The seemingly-straightforward concept of VA loans starts to get complicated when talking about VA entitlements.
Traditionally, the basic entitlement is 25% of the loan amount up to the conforming loan limit in the county where you live. Provided that you meet the minimum loan requirements set by the VA, most lenders will let you borrow up to four times your basic entitlement without a downpayment.
However, due to a bill signed by President Donald Trump on June 25, 2019, those loan limits are going away. If you have full VA entitlement and pass the lender’s secondary credit requirements, then you can borrow past the usual $144,000 loan limit—and the VA will still guarantee 25% of the loan.
It’s important to note that VA loans do not pay for part of your mortgage. The entitlement provided by the US government is only used to protect the lender’s investment in case of the default, which dramatically lowers the perceived risk. You will still have to pay for the full cost of your loan, on top of any mortgage rates charged by the lender, which is why you will still need to pass the lender’s (typically lower) credit requirements.
Lenders usually ask for your credit history, income, and assets in determining the size of the loan to give out.
How do I know if I have full entitlement?
According to the US Department of Veterans Affairs, you have full entitlement if you satisfy any of the following criteria:
- You’ve never used your home loan benefit;
- You’ve used your home loan benefit before, but have since paid it in full and sold the property; or;
- You’ve used your home loan benefit, but had a foreclosure or compromise claim and repaid it in full.
Can I still get a VA-backed home loan if I don’t have full entitlement?
Yes, subject to how much entitlement you have left and the customary county loan limit where you live. This means that the US government will continue to back loans for up to 25% minus the amount of entitlement already used.
Technically, the home loan limit does not place a cap on how much you can borrow. However, it does limit how much the government is willing to pay the lender back in case of default. In this case, you may need to shell out a downpayment to satisfy the lender’s requirements.
Much of the confusion revolving around VA entitlement revolves around the limits previously imposed by law to the US Department of Veteran Affairs on the percentage of loans they can guarantee. With that limit taken away, the most essential thing for veterans and their surviving spouses to do is to determine their eligibility, and whether or not they have full entitlement or not!
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