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Mortgage Guide

How to get a home loan

How to profit from VA Loan entitlement


Do you know that you can use a VA Loan more than once? 

Yep, in fact, you can buy several properties using VA Loans and do 100% financing on all of them. But, don’t expect the Department of Veterans Affairs to guarantee an endless number of home loans for you. They set the limit with something they call VA Loan entitlement. 

Your down payment and the purchase price of the house you plan to buy depends on your entitlement. So if you’re going to use one VA Loan or several of them, you need to know about entitlement. In this article, I’ll explain:

  • How VA entitlement works
  • How to buy more than one house using your remaining entitlement
  • How to restore your used entitlement to buy another house
 
How VA entitlement works

Entitlement is credit that the VA awards to each eligible veteran. The credit is worth a specific dollar amount. When you’re ready to buy a house, exchange your entitlement for a VA Guaranty.

Use the VA's guarantee instead of cash for your down payment. If you have enough entitlement, you can buy a house with no money out-of-pocket. See How to qualify for a VA Loan.

To figure out your VA entitlement amount, check your VA Certificate of Eligibility (COE).

 

VA COE example

 

The COE reads, "... the entitlement amount is 25% of the VA Loan limit."

The VA Loan limit for 2019 is $484,350. Since the maximum entitlement amount is 25% of the VA Loan limit, your maximum entitlement amount is $121,087.

  • $484,350 VA loan limit
  • X 25%
  • =$121,087 Your entitlement available

You could go out and buy a house for exactly $484,350 and use up all your entitlement at one purchase.

 

Example 1:

  • $484,350 Property value
  • $121,087 Entitlement available [VA Loan limit X 25%]
  • $121,087 VA Guaranty [Property value X 25%]
  • $484,350 VA Loan amount
  • $0 Down payment

It’s unlikely that you’ll buy a house for $484,350, the exact VA Loan limit. Let’s see what happens when we lower the property value to $300,000.

 

Example 2:

  • $300,000 Property value
  • $113,275 Entitlement available [VA Loan limit X 25%]
  • $75,000 VA Guaranty [Property value X 25%]
  • $300,000 VA Loan amount
  • $0 Down payment

You used only $75,000 of your $113,275 entitlement. You have $38,275 remaining entitlement.

  • $113,275   Entitlement available
  • -$75,000 Entitlement charged
  • =$38,275 Entitlement remaining

How to buy more than one house using your remaining entitlement

You can use the VA Loan again to buy another house before you sell your current one. You can even keep your current place and rent it out.

First, check your VA Certificate of Eligibility to see how much of your entitlement you are already using. Find it in the table titled “Prior Loans Charged to Entitlement.”

VA COE entitlement charged

Next, keep a few important rules in mind when planning to use your remaining entitlement.

  1. Your next loan amount must be more than $144,000. You can’t use remaining entitlement if the amount you borrow is $144,000 or less.
  2. The place you buy must be your primary residence. You can’t use a VA Loan to buy an investment property.
  3. The most you can borrow is 4X your remaining entitlement. You need a down payment if you buy a house for more.

Let’s take a closer look at that last rule. Using Example 2 from above, if your remaining entitlement is $38,275 and your VA Guaranty is capped at 25% of the loan amount, then your maximum loan amount is $153,100.

  • $38,275 Entitlement remaining
  • ÷25% VA Guaranty
  • =$153,100 Max VA Loan amount

The easy way to do the math is to multiply your leftover entitlement by 4. $38,275 [Entitlement remaining] X4 = $153,100 [Max VA Loan amount].

 

Example 3:

You need a down payment if you buy a house worth more than 4X your remaining entitlement. For example, you need $36,725 down to buy a place for $300,000.

  • $300,000 Property value
  • $225,000 Lender’s liability [75% of the property value]
  • $38,275 Entitlement remaining
  • $263,275 VA Loan amount [Lender’s liability + Entitlement remaining]
  • $36,725 Down payment [Property value - loan amount]

Max VA loan amount

 

The VA caps your total entitlement at $113,275 for a reason. They want to help veterans become a homeowner. They don’t want veterans using the VA Loan program to amass rental properties.

So each time you use a VA Loan to buy a house you tie up a portion of your entitlement. Eventually, you use up all your entitlement. To continue using VA Loan you must come up with a down payment.

 

How to restore your used entitlement to buy another house

Pay off the VA Loan and sell the house.

Homeowners move every ten years on average, according to the National Association of Realtors.

When the time comes for your move, you can use the VA Loan again to buy a new place. In fact, you can use the VA Loan as many times as you want, as long as you

  • Pay off the VA Loan
  • Sell the house you bought with it
  • Restore your entitlement

For instance, sell that $300,000 house from Example 2 and use the money to pay off the VA Loan. Then, ask the VA to restore your $75,000 charged entitlement. After they restore it, you can reuse it to buy your next house.

 

Example 4:

  • $113,275   Entitlement available
  • -$75,000 Entitlement charged
  • =$38,275 Entitlement remaining
  • +$75,000 Entitlement restored
  • $113,275   Entitlement available

How a one-time restoration of entitlement works

Pay off the VA Loan and keep the house.

There is a way to restore all of your $113,275 entitlement without selling the house you bought with your VA Loan. The VA calls it a one-time restoration because they let you do it only once.

First, you must pay off your VA Loan. Then you may apply for a one-time restoration of your entitlement through the VA. After the VA restores it, your lender will approve your new VA Loan so that you can buy another home with no down payment.

Think about it. You could double your entitlement and buy two houses worth $453,100 each. By leveraging the VA Loan, you could own $906,200 of 1-4 unit residential real estate without investing any of your own money.

The VA tracks the one-time restoration on your COE. After you apply for one, they won’t let you restore your entitlement again until you sell all the properties you bought using VA Loans.

Before you dream about a rental property, get some help from a VA Loan Experts at NewCastle Home Loans. Schedule 15-mins to talk with me so that we can come up with a strategy. 

 

How to request restoration of entitlement from the VA

One of our customers, George refinanced his house last year and paid off his VA Loan. He’s buying another place, but for now, he’ll keep his current house and rent it out.

George wants a new VA Loan so that he can buy with no down payment. But his COE still shows the old VA Loan that he paid off last year. According to the COE, George doesn’t have enough entitlement available to buy a new house without a big down payment.  

George called us. We helped him get a one-time restoration of his entitlement and we closed his new VA Loan in 20-days.  

There are two ways to ask the VA to restore your entitlement.  

  1. Go directly to the VA and complete the application online. Supply a letter from the lender to show that you paid off the VA Loan. If you sold the house include a copy of the Closing Disclosure as proof. Check back in a few days.
  2. Ask your VA approved lender to do it for you. Let your lender handle it, especially when you sell your current home and buy your next house at the same time.

Ways to use your VA entitlement
  • If you buy a house by yourself or with your non-veteran spouse you can use the full entitlement.
  • If you buy a house with your non-spouse companion like a friend you can use half of the entitlement.
  • If you’re married to a veteran and both of you buy a house together, you can each use half of your entitlement or either can the full entitlement.
Learn more about VA Home Loans.

Conclusion

Think of entitlement like a prepaid benefit credit from the Veterans Administration. They give you $113,275 to buy VA guarantees. Use a VA Guaranty instead of cash for down payments on a home.  

If you don’t use up all your entitlement credits on your first home, you can use the balance to buy another. Eventually, you’ll use all your entitlement and you’ll need to come up with cash for a down payment.

The VA will restore your entitlement after you pay off the VA Loan and sell the house you bought using the VA Loan. Then you can reuse the restored entitlement the same way you did the first time. The VA has no limit on the number of times you can restore your entitlement.    

If you don’t want to sell the house, the VA will let you restore your full $113,273 entitlement one-time. As long as you pay off the VA Loan, you can keep the place as a rental property or vacation home.

After a one-time restoration, you must sell the properties you bought with VA Loans before you can restore your entitlement again.

Entitlement is a benefit. Use it to unlock the power of the VA loan. NewCastle supports our veterans. Our VA Loan Experts are here to guide you to your goal of home ownership. Contact us now.

Did I miss something? Leave a comment to let me know how I can make this article better for veterans.

If you aren't sure where to start, make sure to try out our VA Loan Calculator. The calculator lays out how much a home will cost you with a VA Loan in plain sight. 

In addition, we recently published "The Complete Guide to VA Loans," which you can download for absolutely free! It will walk you through all the details about how documentation, benefits, getting approved, and closing on your VA Loan. Click the button below to get your free copy!

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