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By November 23, 2010 0 Comments Read More →

Military families ask: what’s a VA mortgage entitlement?

Entitlement is one of the cornerstones of the VA Loan Guaranty program.

It’s also one of  the most consistently confusing aspects of the whole eligibility and financing process. And it’s not just borrowers — the nooks and nuances surrounding entitlement confound industry experts, too.

Veterans eligible to participate in the VA Loan Guaranty program have anentitlement, which is essentially the amount that the VA pledges to guarantee to a lender in the event of default. The basic entitlement amount is $36,000.

VA Mortgage Math

Since the VA covers up to a quarter of a borrower’s mortgage, some simple math dictates that the maximum loan amount for most veterans would be $144,000 ($36,000 x 4). While that figure is nothing to sneeze at, VA guaranties have historically handicapped military buyers in some of the country’s costlier areas. To stay competitive with other mortgage products, the agency began to link its guaranty amounts to the conforming loan limits for conventional loans.

At present, the conforming loan limit in most parts of the country is $417,000. Since the VA guarantees a quarter of a borrower’s mortgage, the agency basically had to create a new, secondary entitlement to cover the gap. That secondary entitlement of $68,250 automatically kicks in for any loan greater than $144,000.

That’s a lot of numbers, and it can start to get confusing. This might be an easier way to think about it:

A.    $417,000 is the conforming loan limit
B.     One quarter of $417,000 = $104,250
C.     The VA primary entitlement is $36,000


That difference between B and C is $68,250, or the secondary entitlement

The VA Guaranty

All of that said, the VA doesn’t actually have loan limits in place for most borrowers. There are limits in some of the nation’s high-cost counties that are calculated by looking at the conforming loan limit and the area’s median home price. Veterans can have loan amounts up to and even beyond $729,000 depending on where they live.

What the VA does limit is its guaranty to lenders in those situations where a loan amount exceeds $417,000. In those cases, the VA guaranty is the lesser of two things:

  • 25 percent of the VA county loan limit, or
  • 25 percent of the loan amount

You can view the VA’s current county loan limits at the VA’s online home loan hub, homeloans.va.gov. These limits are subject to change each year.

While it’s important to know the loan and guaranty limits, the reality is lenders are going to approve each applicant for a specific loan amount based on their unique financial situation, the potential property and other key factors.

Next time, we’ll take a closer look at second-tier entitlement. This unique benefit allows veterans with existing VA loans or previous histories of default on VA loans to secure new financing.

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About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, from Lenderama and Bigger Pockets to the Huffington Post and Motley Fool. A former newspaper and magazine writer, he is also content director for a leading VA lender. Follow him on Google+.

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