VA loan | How to read the VA Certificate of Eligibility (COE)

This guide is a practical tool for reading the VA Certificate of Eligibility (COE). Armed with this information, you will be well-prepared to determine whether you can use a VA loan to buy a home without a down payment.

What is a VA Certificate of Eligibility (COE)?

A VA Certificate of Eligibility (COE) is an official document from the Department of Veterans Affairs (VA). It proves a veteran’s eligibility for a VA home loan. The COE includes:

• The veteran’s entitlement amount.
• Any previous VA loans that used entitlement.
• Funding Fee exemption status.
• Special conditions tied to eligibility.

Lenders use the COE to confirm a veteran’s eligibility for a VA loan. Veterans can request the COE directly from the VA or allow their mortgage lender to obtain it.

After you apply for a mortgage with NewCastle Home Loans, we will get your COE from the VA website. This process verifies your eligibility for a VA home loan and takes only minutes to complete. We require your social security number, date of birth, and permission to access your COE.

How to read the Certificate of Eligibility

To read a COE, focus on these key sections: 

• 1. Entitlement Code
• 2. Funding Fee
• 3. Prior Loans Charged to Entitlement
• 4. Entitlement Amount
• 5. Conditions

Our customer Mason used a VA loan to buy a home in January. Using his COE as an example, I’ll explain the five sections that affect eligibility. 

Mason’s Certificate of Eligibility:

1. VA Entitlement Codes

The COE includes an Entitlement Code that specifies the period of military service or the basis for a veteran's eligibility for VA home loan benefits. By identifying your entitlement code, you can understand how your service period aligns with VA loan eligibility requirements.

Below is a list of the eleven entitlement codes and their corresponding service periods:

2. VA Funding Fee

The VA Funding Fee is a single payment required from most veterans or service members when securing a VA home loan. This fee helps cover the expenses of the VA loan program, which provides advantages such as no down payment and no private mortgage insurance.

The Funding Fee amount depends on several factors:

• Loan Type: Purchase, construction, or refinance loans may have varying fee percentages.
• First-Time or Repeat Use: First-time VA loan users generally pay a lower fee than those who have used the benefit before.
• Down Payment Size: A down payment can lower the Funding Fee percentage.

Some veterans are exempt from paying the Funding Fee, including those receiving VA compensation for service-connected disabilities.

Borrowers often finance the Funding Fee by including it in the total loan amount, reducing the upfront cash needed to purchase a home.   

3. Prior VA Loans Charged to Entitlement

The Prior VA Loans Charged to Entitlement section on your COE details any previous VA home loans you've utilized. It indicates the amount of your entitlement currently in use, referred to as "entitlement charged." Understanding this helps you determine the remaining entitlement available for future VA loans. 

 

4. VA Entitlement Amount

The VA Entitlement Amount on your COE indicates the portion of your VA home loan benefit currently available. This section helps determine if you have sufficient entitlement for a zero-down payment VA loan.

If your COE states, "This veteran's basic entitlement is $0," you've previously used your basic entitlement, typically $36,000. However, you may still have remaining or "bonus" entitlement available. The VA provides additional entitlement beyond the basic amount, allowing eligible veterans to secure more significant loan amounts without a down payment.

5. Conditions on the COE

The Conditions section on your Certificate of Eligibility (COE) specifies any particular requirements or stipulations related to your VA home loan eligibility.

For instance, if this is your second VA loan, the COE may indicate a "subsequent use Funding Fee," meaning you'll incur a higher Funding Fee than your first loan. It's important to note that veterans exempt from the Funding Fee due to service-connected disabilities are not subject to this charge. Reviewing the Conditions section ensures you know of any obligations or fees associated with your VA loan.

Restoration of Entitlement on the COE

Restoration of Entitlement allows veterans who have previously used their VA loan benefit to regain some or all of their entitlement, enabling them to qualify for a new VA loan.

For example, Michelle purchased her home with a VA loan in December. Her Certificate of Eligibility (COE) includes the following items:

• 6. Entitlement Code 05VA
• 7. Funding Fee Exempt
• 8. One-Time Restoration of Entitlement

These entries indicate that Michelle has restored her entitlement and is exempt from the funding fee. The "One-Time Restoration of Entitlement" note signifies that she has used this benefit to regain her entitlement for future use.

If you have questions about your COE or the restoration process, schedule a call with a VA home loan expert at NewCastle Home Loans.

6. Basic Restoration of Entitlement - Code 05

Basic Restoration of Entitlement—Code 05 on your COE indicates that you've previously used your VA loan benefit, fully repaid the associated loan, and requested the Department of Veterans Affairs (VA) to restore your entitlement.

This restoration allows you to reuse your VA loan benefit for future home purchases without a down payment. To qualify for this restoration, you must have:

• Fully repaid the original VA loan
• Sold the property

By meeting these conditions, you can restore your entitlement and use it for subsequent VA loans.

7. VA Funding Fee Exemption

The VA Funding Fee Exemption on your COE indicates that you are not required to pay the VA funding fee when obtaining a VA home loan.

Veterans who receive compensation, retirement, or active duty pay from the VA for a service-connected disability are exempt from the funding fee. Additionally, surviving spouses of veterans who died in service or from a service-connected disability are also exempt.

8. Special One-Time Restoration of Entitlement

The Special One-Time Restoration of Entitlement designation on your COE signifies that the VA granted you an exception to the standard rules governing entitlement restoration.

The VA grants this special one-time restoration only once. After this, any future restoration requires the disposal of all property obtained with a VA loan.

If you have questions about your COE or the restoration process, remember that you are not alone. NewCastle Home Loans is here to support you every step of the way, ensuring you feel supported and confident in your home-buying journey.

Confirm you're eligible for a VA Loan.

The easiest way to get a copy of your COE is to ask NewCastle Home Loans to do it for you. Call us at 888-610-1112.

Or, if you prefer to do it yourself, visit the VA website:

• VA: How to Apply for a COE
• VA: Obtaining your COE online
• VA: Understanding your COE
• CFPB: What is a VA loan?

Visit NewCastle's VA page for more information. Feel free to comment below.