We’ve addressed the topic of whether you can have more than one VA loan at a time in our Google+ hangout, but the topic is often difficult for many veterans to understand. Because you’re dealing with entitlement and maximum loan amounts, it can seem incredibly complicated, but once it’s broken down, the process isn’t as bad as it first seems.
First, let’s clear the air about what “having more than one VA loan” means. Some say it means “using your VA loan benefit more than once” while others intend to have two VA loans at the same time. You can absolutely do both.
If you’ve used your VA loan benefit once, you can use it over and over again as many times as you need – as long as you’ve restored your entitlement. Typically this is done by selling the home you financed with your VA loan and paying off the loan. If your current home was financed with a VA loan, and has since been paid off but you still own it, you can get a one-time restoration of your entitlement to get a second home with your VA loan. Keep in mind, the funding fee may increase the second time you use your VA loan benefits.
The second meaning isn’t as clear cut. It involves the VA guaranty, loan limits, what they call “bonus entitlement” and a bit of math.
The guaranty is what the VA promises to pay the lender, generally 25% of the loan amount, in case the loan goes into default. For example, if a person defaults on a VA loan for $100,000, the lender would net $75,000 and the VA would pay the lender $25,000 to make up the difference. Because of this guaranty, mortgage lenders are able to provide VA loans at 100% of the value or purchase price – hence zero down.
The average maximum loan amount is $144,000 which leaves your basic entitlement at $36,000. ($36,000 x 4 = $144,000). While you may be able to buy a nice home with that amount in some areas, the VA recognizes that most veterans may need a little bit more in order to get a home. So, in order to help meet the demands, the VA created a bonus entitlement amount of $68,250. This bonus entitlement is tied to the VA county loan limits for most of the country, but for sake of explanation, we’ll go with the most common amount. This bonus entitlement is used any time you’d like to buy a home that is more than $144,000.
The total amount of entitlement you have available is your basic ($36,000) plus your bonus ($68,250) to leave you with your total entitlement ($104,250). Now remember, that’s your total entitlement – not the amount you have available to buy a home. A quarter of your loan amount should equal what you have available ($510,400).
OK, let’s break it down even further – but we’ll use a real-world scenario.
Lieutenant Adam Smith is being relocated to North Carolina in March. He has a home in Michigan that he’d like to keep because it’s near family and knows he will retire there one day. In the meantime, he will probably rent it out. Lt. Smith used $50,000 of his entitlement on this home and is planning on purchasing a new home for $200,000 in North Carolina for his family (county loan limit of $510,400). Will he be able to use his entitlement to get a second VA loan on this home? Yes, and here’s why.
This is the equation we would use to calculate available entitlement.
County limit x 25% = Maximum Guaranty
Maximum Guaranty – Entitlement Used = Entitlement Available
Entitlement Available x 4 = Maximum loan Amount
So in Lt. Smith’s case he has:
$510,400 x 25% = $127,600 Maximum Guaranty
$127,600 – $50,000 = $77,600 Entitlement Available
$77,600 x 4 = $310,400 Maximum Loan Amount with 25% Guaranty.
Or to figure out if you meet the 25% requirement, use this equation:
Entitlement Available / Home Purchase Price = Guaranty Percentage
In this case it would be $76,750 / $275,000 = 27% guaranty – over the required 25%.
Starting January 1, 2020, the VA is making changes to how entitlement is calculated for VA loans in amounts greater than $144,000. Let’s briefly run through how this works.
First, let’s discuss what happens if you have your full entitlement (you’ve never had a VA loan before or it’s been fully restored). If that’s the case, for loan amounts greater than $144,000, the VA entitlement is 25% of the loan amount. As an example, if the loan amount is $300,000, the VA would issue a guarantee certificate of $75,000 to the lender.
If you’ve already used some of your entitlement, but not all of it and want to get a second property with a VA loan, county limits still apply. The maximum amount the VA will guarantee is 25% of the county limit minus the portion of the entitlement you’ve already used. Let’s say Lieutenant Smith has already used $35,000 of his entitlement and the county limit in his area is $510,400. The maximum amount the VA will guarantee for a lender is $92,600 (0.25*$510,400-$35,000).
It’s important to note that in order to have multiple properties using a VA loan, you have to have at least 25% of the appraised value or purchase price between your remaining entitlement or equity. In Lt. Smith’s case, the maximum he could borrow would be $370,400 assuming he didn’t make a down payment. If the down payment or equity amount were different, it’s important to note that this amount could change.
Once you understand the formula and know the county loan limits for the area in which you’re purchasing your new home, figuring out how much entitlement you are eligible for is easy!
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