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Author of "The Book on VA Loans"
Veterans and service members who want to sell their current VA-backed home and purchase a new primary residence using a VA loan have a pretty simple path. Understanding VA loan entitlement is a key part of the process.
The VA backs a portion of every loan. That backing, known as a guaranty, is reflected in a dollar amount called “entitlement.” Your amount of entitlement in part determines how much you could potentially borrow before having to factor in a down payment. And your Certificate of Eligibility holds the key to determining your available VA loan entitlement.
There are two layers of entitlement, a basic and a bonus, or secondary, level. The basic entitlement is $36,000. For borrowers in most parts of the country, there’s an additional, second tier of $77,275. Add those together and you get $113,275. That’s the maximum entitlement for VA buyers in all but the country’s most expensive housing markets.
Because the VA typically guarantees a quarter of the loan, a borrower with full entitlement can borrow up to $453,100 ($113,275 x 4) before having to factor in a down payment.
As long as you sell the home and pay off the loan in full, you can have your full entitlement restored and available for another purchase. Restoration of entitlement involves a little bit of paperwork, but it’s a simple process that can be done quickly.
Swiftness can be especially important for buyers planning to sell their old home and close on a new one at or around the same time. For example, let’s say you purchased a home a few years ago for $200,000. Because the VA typically guarantees a quarter of the loan amount, you would have utilized $50,000 ($200,000 x 25 percent) of your VA loan entitlement. Now, you’re moving to take a new job and want to purchase a $300,000 home in another non-high cost county.
In this example, you would have $63,275 ($113,275 - 50,000) in remaining entitlement, meaning you could borrow up to $253,100 (63,275 x 4) before having to factor in a down payment. Buyers who want to purchase above where their entitlement caps out need to put down 25 percent of the difference between their cap and the purchase price.
So, in this example, you would need to come up with about $12,000 for a down payment [($300,000 - 253,100 = 46,900) x 25 percent] because of your incomplete VA loan entitlement. For cases like this, selling the home and getting your full entitlement restored before your new purchase closes is critical.
Every borrower’s situation is different. But it’s possible to close on your home sale, get your entitlement restored and close on your new purchase all in the same day. Having at least a few days’ worth of cushion is always preferable.
Working with a lender that truly knows VA loans can make a huge difference if you're considering back-to-back closings. The last thing you want is uncertainty surrounding your hard-earned VA loan entitlement as you move from closing on a sale to closing on your new purchase.