Updated January 2017, reflecting 2017 conventional loan limits and 2017 VA entitlement calculations.
One of the more popular questions about the VA loan program has to do with VA Entitlement and how to calculate a VA Entitlement number.
VA Entitlement Calculation: It Can Be Confusing
Because there are so many people who get confused about the VA Entitlement, who is eligible, how exactly to calculate it, this simple guide and rule of thumb can help you calculate it.
If you are a Veteran and are eligible for a VA loan, you have an Entitlement. This Entitlement is the amount that the VA pledges to guarantee to a lender in the event of default.
The basic entitlement amount is $36,000.
Calculating VA Entitlement
If the basic entitlement is $36,000 – and the VA covers the lender in the event of a loss up to 25% of the amount, then without a secondary entitlement, they maximum VA loan amount would be $144,000 ($36,000 x 4).
And a problem has arisen in that many areas of the country, homes just generally cost more than $144,000.
Which is why in order to be competitive with other mortgage products such as FHA loans or conventional loans, the VA now links its guaranty amounts to the conforming loan limits for conventional loans.
So for most of the country the conventional loan limit is $424,100 and the VA has developed a secondary entitlement that covers the gap of the primary Entitlement. This secondary entitlement is $70,025 and automatically happens for any loan amount over $144,000.
VA Entitlement: An Example
Here is a simple example of how the VA Entitlement calculation works.
Let’s say you bought a house right at the conforming loan limit of $424,100.
The VA would protect the lender against loss for up to 25% of $424,100 – or, $106,025.
Because the VA primary entitlement is $36,000, then the difference between $106,025 and $36,000 ($70,025) is the secondary Entitlement.
When getting a VA loan, be sure to ask your loan officer about the VA Entitlement – because if you still have questions, don’t worry — you aren’t alone. To get matched with a VA-approved lender who can help answer your questions and provide you with a no-obligation quote, fill out our form below. It only takes a minute!