What is VA Loan Bonus Entitlement?
The answer depends on what value you’re referring to. The VA’s official site states that the basic entitlement for VA loans is $36,000. However, that is NOT the loan limit for your home loan purchase, that is simply a basic amount the VA will guarantee for the lender. Here are some more details, via the VA’s official website:
“VA does not set a cap on how much you can borrow to finance your home. However, there are limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend you. The loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a downpayment. These loan limits vary by county, since the value of a house depends in part on its location.
“The basic entitlement available to each eligible Veteran is $36,000. Lenders will generally loan up to 4 times a Veteran’s available entitlement without a down payment, provided the Veteran is income and credit qualified and the property appraises for the asking price.”
Recently, we placed a call to the VA Regional Loan Center in Cleveland, Ohio, to get clarification on something known as “Bonus Entitlement,” which is VA loan entitlement that a borrower could theoretically use to purchase a second home using VA loan benefits.
Bonus entitlement is available for a borrower who will certify the new home is to be his or her primary residence, and for a loan that is $144,000 or higher. This is a loan that could be available with no down payment. Per the VA’s official website:
“Most lenders require that a combination of the guaranty entitlement and any cash down payment must equal at least 25 percent of the reasonable value or sales price of the property, whichever is less. Thus, for example, $23,500 remaining entitlement would probably meet a lender’s minimum guaranty requirement for a no-down payment loan to buy a property valued at and selling for $94,000. You could also combine a down payment with the remaining entitlement for a larger loan amount.”
The keys to purchasing a second home using VA loan bonus entitlement is to remember that the loan must be above $144,000 to qualify for bonus entitlement on a no money down loan, the borrower must occupy the newly purchased home when the loan closes, and the borrower must still qualify with credit, income and debt-to-income ratio. If you are still paying on an existing VA loan, you may need to do the math on how that financial obligation affects your debt to income ratio.