What is Veterans Affairs Loan Entitlement and How Does It Work?
The term 'entitlement' is central to the VA home loan program. It's not a specific dollar amount you can borrow but rather the amount the Department of Veterans Affairs guarantees on your behalf. This guarantee protects the lender against loss if you default on the loan, making it possible for them to offer favorable terms like zero down payment and no private mortgage insurance (PMI).
There are two layers to your entitlement:
- Basic Entitlement: Every eligible veteran starts with a basic entitlement of $36,000. For smaller loans, this amount is often sufficient for the VA to guarantee the standard 25% of the loan value.
- Bonus Entitlement (Remaining Entitlement): This is an additional layer of entitlement that kicks in for loans exceeding $144,000. It is calculated based on federal conforming loan limits set by the Federal Housing Finance Agency (FHFA). This bonus entitlement is what makes it possible to purchase a home in high-cost areas like San Diego and, more importantly, to have more than one VA loan at a time.
Think of your entitlement as a line of credit with the VA. When you use it for a home purchase, a portion of it is 'tied up' with that property. What’s left over is your remaining, or bonus, entitlement.
How Can I Have Remaining Entitlement After Already Buying a Home?
Many veterans mistakenly believe that once they use their VA loan, the benefit is exhausted until the loan is paid off and the property is sold. However, you can have remaining entitlement available for another purchase in several common scenarios:
- You Bought a Home Below the County Loan Limit: If your first VA loan was for a modest amount, you likely did not use your full entitlement. For example, if you bought a condo for $300,000 years ago, you only used a fraction of the entitlement available today, leaving a substantial amount for a new purchase.
- You Refinanced a VA Loan into a Conventional Loan: If you refinance your VA loan into a non-VA product, like a conventional mortgage, you can apply to have the entitlement used for that original loan restored. This frees it up for a new purchase while you keep the first home.
- You Repaid a Previous VA Loan in Full: If you paid off a previous VA loan but still own the home, you can apply for a one-time restoration of your entitlement to buy a new primary residence.
- You Sold a Home and Paid Off the Loan: When you sell a property that was financed with a VA loan and the loan is paid in full, you can apply to have your full entitlement restored for future use.
How to Calculate Your Available Bonus Entitlement in San Diego
Calculating your bonus entitlement is the most critical step in determining your purchasing power for a second home. It requires knowing your county's specific loan limit. For 2024, the VA loan limit for San Diego County, which includes cities like San Diego and Oceanside, is $1,149,825. (The data, information, or policy mentioned here may vary over time.)
Here is the step-by-step calculation:
Step 1: Determine the Maximum VA Guaranty
The VA guarantees up to 25% of the county loan limit. This is your maximum potential entitlement in that county.
- Calculation: $1,149,825 (San Diego County Loan Limit) x 0.25 = $287,456.25
This is the total amount the VA is willing to guarantee on your behalf in San Diego County.
Step 2: Calculate Entitlement Used on Your Current Loan
Next, determine how much of your entitlement is currently tied up in your existing VA loan. This is 25% of your original loan amount.
- Example: Let’s say you have an existing VA loan on a property in another state with an original loan amount of $350,000.
- Calculation: $350,000 x 0.25 = $87,500
This is the amount of your entitlement currently in use.
Step 3: Find Your Remaining Entitlement
Subtract the entitlement you've used from the maximum guaranty available in the county where you want to buy.
- Calculation: $287,456.25 (Maximum Guaranty) - $87,500 (Used Entitlement) = $199,956.25
This is your available 'bonus entitlement' for the new purchase.
Step 4: Calculate Your Maximum Zero-Down Loan Amount
Lenders will typically loan up to four times the amount of your available entitlement without requiring a down payment.
- Calculation: $199,956.25 (Remaining Entitlement) x 4 = $799,825
In this scenario, you could purchase a home in San Diego for up to $799,825 with zero down payment, even while still owning the first property.
Can I Use My Remaining Entitlement to Buy a Second Home in Oceanside?
Yes, but with a critical condition: occupancy. The VA loan program is designed for primary residences. When you use your remaining entitlement to purchase a second home, you must intend to occupy it as your new primary residence.
This is common for service members executing a Permanent Change of Station (PCS) to a base near Oceanside or for veterans relocating for a new job. In this case, your first home can be converted into a rental property or used as a second home. You cannot use your bonus entitlement to buy a vacation home or a full-time investment property.
You will need to certify that you intend to occupy the new property, typically within 60 days of closing. (The data, information, or policy mentioned here may vary over time.) The lender will verify the practicality of this move, ensuring your new home is a reasonable distance from your place of employment. (The data, information, or policy mentioned here may vary over time.)
County Loan Limits and Their Effect on Your Entitlement
County loan limits are the foundation of the bonus entitlement calculation. They are set annually by the FHFA and vary based on local housing costs. In high-cost areas like San Diego County, these higher limits give veterans significantly more purchasing power.
The loan limit does not cap how much you can borrow. You can get a VA loan for an amount higher than the county limit. However, the limit dictates the maximum amount you can borrow with a zero down payment. If you exceed the maximum zero-down amount calculated from your bonus entitlement, a down payment will be required. This ensures the lender still has a total of 25% coverage between your down payment and the VA's guaranty.
Is a Down Payment Required When Using Bonus Entitlement?
A down payment is not always required, but it depends on the purchase price of the new home versus your calculated maximum zero-down loan amount.
Scenario 1: No Down Payment: If the purchase price is at or below your maximum zero-down loan amount ($799,825 in our earlier example), you will not need a down payment.
Scenario 2: Down Payment Required: If the purchase price exceeds your maximum zero-down loan amount, you will need to make a down payment. The required amount is typically 25% of the difference between the purchase price and your max loan amount.
- Example: Let’s say you want to buy a home in San Diego for $900,000, but your entitlement only supports a zero-down loan up to $799,825.
- Difference: $900,000 (Purchase Price) - $799,825 (Max Zero-Down Loan) = $100,175
- Required Down Payment: $100,175 x 0.25 = $25,043.75
This structure ensures the lender's risk remains covered at the 25% threshold, making the loan possible.
How to Restore Your Full Entitlement
If you want to regain your full VA loan entitlement to maximize your purchasing power, there are two primary paths:
- Sale and Loan Payoff: This is the most common method. When you sell the property financed with your VA loan and the mortgage is paid in full, you can apply for a full restoration of your entitlement. You can do this as many times as you like.
- One-Time Restoration: If you have paid off your VA loan but decided to keep the property (perhaps as a rental), you may apply for a one-time restoration of your entitlement to purchase a new primary residence. As the name implies, this option can only be used once.
To apply for restoration, you must complete VA Form 26-1880, Request for a Certificate of Eligibility, and provide proof that the prior loan has been paid in full, such as a closing statement from the sale.
The Process for Applying for a Second Veterans Affairs Loan
Applying for a subsequent VA loan is very similar to applying for your first one, with the added step of verifying your entitlement.
- Obtain Your Certificate of Eligibility (COE): Your COE will show your basic entitlement and whether a previous loan is still active. Your lender can usually pull this for you in minutes.
- Calculate Your Remaining Entitlement: Work with a VA-savvy mortgage lender to perform the detailed calculation based on your current loan and the limits in your target county.
- Get Pre-Approved: A pre-approval from a lender demonstrates that you meet the income, credit, and debt-to-income requirements for the new loan amount. (The data, information, or policy mentioned here may vary over time.)
- Find a Home: Begin your home search with a clear understanding of your budget and purchasing power.
- Underwriting and Closing: Once you are under contract, the lender will complete the underwriting process, which includes a VA appraisal and a final review of your finances before you close on your new home. Understanding your VA loan bonus entitlement can unlock homeownership opportunities you thought were out of reach. If you're a veteran considering a move in California, connect with a mortgage professional who specializes in VA loans to get a precise calculation of your purchasing power.
Ready to explore your homeownership possibilities? Take the next step to understand your purchasing power. Apply now to see what you qualify for.
Author Bio
David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.
References
VA Home Loan Entitlement | U.S. Department of Veterans Affairs
