A guide to decoding your VA loan entitlement

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If you qualify for a mortgage loan backed by the Department of Veterans Affairs (VA), you have VA loan entitlement. This term refers to the amount of money that the government will pay your lender if you default on a home loan. There are two main types of VA entitlement, basic entitlement and second-tier entitlement. The amount of entitlement you have left dictates how much of a loan you can take out. If you don’t have enough entitlement left, you can typically restore it by paying back the original loan.

When shopping for a new home, a VA loan is a valuable asset to eligible veterans, active service members, and spouses. But if you don’t know how your entitlement works, it may cause issues in your home search or when it comes time to make an offer.

How does VA entitlement work?

Most mortgage loans are an agreement between a borrower and a lender, making a borrower fully responsible for paying back the loan. But with a government-backed loan like a VA loan, the government guarantees that it will reimburse a lender a certain dollar amount if a borrower fails to repay their mortgage.

This guarantee is represented by entitlement. VA loan entitlement is the maximum amount the VA will repay a lender in the event that a borrower defaults on their loan. This matters because, as of January 1, 2020, VA loan borrowers with full entitlement have no maximum amount that they can borrow without making a down payment.

Of course, lenders aren’t going to approve any loan amount just because you’re eligible for a VA loan. If you meet minimum loan requirements, most lenders will approve up to four times what is known as “basic” VA entitlement without requiring a down payment. With the VA loan guarantee functioning as insurance for the lender, borrowers can get a mortgage with very little cash upfront — just VA closing costs.

What is full entitlement?

If you have never used your VA loan benefits or you’ve paid off a previous VA loan in full and sold the property that you used the loan to purchase, you should have full VA loan entitlement.

Borrowers with full entitlement have no hard limit of how much they can borrow without a down payment. Again, that’s not to say a lender will give you a $2.5 million mortgage when you make $50,000 per year, just that there’s no limit enforced by the VA. 

Your mortgage amount is still subject to lender approval. With full entitlement, the VA will guarantee up to 25% of the loan amount, even if it exceeds your county’s conforming loan limit.

3 ways to get full VA entitlement

  • You’re an active duty service member who has served for 90 consecutive days.
  • You’re a veteran, National Guard member, or Reserve member who meets active duty requirements for your dates of service.
  • You’re the spouse of a veteran who died in the line of duty or from a service-connected disability.

3 reasons you'd have impacted entitlement

  • You’re still paying back a VA loan.
  • You’ve paid a previous loan in full but still own the house that you used the loan to purchase.
  • You’ve previously defaulted on a VA loan.

With impacted entitlement, the VA guarantees your loan up to the local conforming loan limit, minus the entitlement you’re currently using. If your mortgage amount exceeds your entitlement, you will have to make a down payment.

→ Learn more about how much you can get with a VA loan

How do I know how much entitlement I have left?

You can find your entitlement amount on your Certificate of Eligibility (COE), provided to active duty service members and veterans who meet the eligibility requirements for a VA home loan. Your COE will have an entitlement code that typically corresponds with wartime or peacetime periods

If you don’t have a COE, your lender can obtain it for you once you’ve started the mortgage application process. You can also apply online through the VA’s eBenefits website.

Related: How many times can you use a VA loan?

Basic vs. bonus (second-tier) VA entitlement

The COE tells you how much “basic” entitlement you have, but you’re also likely eligible for “bonus” or Tier 2 entitlement. Generally, borrowers don’t have to think too much about the difference.

Basic entitlement is gauged based on a loan amount of $144,000. If your COE says your basic entitlement is $36,000, that means the VA will guarantee up to 25% of the loan amount. It’s a convoluted way of saying you have full entitlement.

Bonus entitlement kicks in for loans over $144,000. With full entitlement, bonus entitlement is equal to 25% of your total loan amount. With reduced entitlement, the VA will only guarantee up to 25% of your county’s conforming loan limit, minus the amount of entitlement you’re currently using. Bonus entitlement is also referred to as second-tier entitlement. 

Your COE may say that your entitlement is $0. That just means your $36,000 basic entitlement is currently being used, but you may still be able to get a loan through your bonus entitlement.

Calculating VA entitlement

If you’ve used your basic entitlement and want to know how much bonus entitlement you have, you’ll need to do some math. In today’s housing market, a $144,000 mortgage loan probably won’t get you a house, so most VA loan recipients have to tap into their bonus entitlement. Even with impacted entitlement, you may still be able to buy a second home with your bonus VA loan entitlement. It just covers the gap between your basic entitlement and the coverage that your loan amount requires.

Again, borrowers don’t really need to know the complex ins and outs of basic vs. bonus entitlement because it’s up to your lender and the VA to figure out how much you have. Still, the knowledge can’t hurt.

To calculate your loan entitlement, you have to know if you have full or impacted entitlement. With full entitlement, simply multiply your loan amount by 0.25 to understand how much entitlement you’ve used. With impacted entitlement, look up your county’s conforming loan limit. The entitlement you’re using is this number multiplied by 0.25.

Example

You purchased your current home with a VA loan with a $400,000 mortgage. You’ve just received permanent change of station orders but can’t sell your home to get your VA loan entitlement restored. The amount of entitlement you’ve used is 25% of your loan amount so, in this case, that’s $100,000.

Since you’re already using entitlement, you now have impacted entitlement and are subject to the conforming loan limit in your new location. Let’s say it’s the standard limit for 2023: $726,200. The maximum amount that the VA loan will guarantee, then, is 25% of $726,200: $181,550.

Your remaining entitlement is $181,550 - $100,000: $81,550.

Multiply $81,550 by 4 to find your maximum loan amount without a down payment: $326,200.

You can still get a loan for higher than that number, but you’ll have to make a down payment equal to the difference between the amount you want to borrow and the maximum loan amount covered by your entitlement.

Say you wanted to buy a house for $400,000. In that case, you would have to pay 25% of the difference of $400,000 and $326,200 as a down payment. That’s 25% of $73,800: $18,450 as a down payment.

If you’re qualified for a VA loan, you can use the program as much as you’d like. Your entitlement, however, is not infinite.

→ Learn more about how many times you can use a VA loan 

How do you restore VA loan entitlement?

Restoring your VA loan entitlement is as easy as paying back the loan and selling the property attached to the loan. Basically, if you move and sell your previous home, you’ll get restored entitlement. In a few scenarios, you may need to fill out VA Form 26-1880 to restore your eligibility.

Three reasons to restore your entitlement

  • If your COE says “PIF No Restoration,” it means your VA loan was paid in full but you haven’t applied for restoration. You must do so to restore your entitlement.
  • If you’re doing a VA cash-out refinance, you must apply for a restoration of entitlement for cash-out refinance purposes, restoring your entitlement and applying it to your new mortgage.
  • If you paid off the VA loan on another home you still own, you’ll need to request a one-time restoration to re-establish your full entitlement.

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