If you are a veteran and want to secure VA financing, you have to obtain your Certificate of Eligibility. This form lets a lender know that you are eligible for VA benefits, allowing the lender to give you the flexible guidelines of the VA loan.
What happens if you don’t use your Certificate of Eligibility right away, though? Does it expire?
The good news is that it does not expire. You can use your COE whenever you are ready to buy a house. What does change, though, is the amount of your entitlement based on what you have done thus far with your benefits.
How Entitlement Works
Your Certificate of Eligibility lets a lender know how much entitlement you have. This means the size loan that the VA will guarantee on your behalf. If you’ve never used your entitlement before, you’ll have full entitlement. This means you can secure a loan up to $453,100. This only means you are eligible for a loan of this size, though. It doesn’t mean that you qualify for it. That’s a whole different story.
The VA breaks up your entitlement into two pieces – the basic entitlement and the bonus entitlement.
Basic entitlement is for $36,000. Since the VA guarantees 25% off the loan amount, you can borrow up to 4 times the entitlement, so $144,000. Since it’s hard to find a home for $144,000 in today’s market, the VA offers bonus entitlement.
Bonus entitlement allows you to secure a loan of up to $453,100 in most areas. The bonus entitlement is the difference between the basic entitlement and the $453,100. This year it means the bonus entitlement is for a loan amount of up to $309,100.
Using Your Entitlement
Once you use your entitlement, the VA deducts the amount used from your total entitlement. You cannot reuse this entitlement until you pay off the mortgage that you used the original entitlement on and sold the home. Even then, you have to request that the VA reinstate your entitlement.
Typically, VA loans are only for owner-occupied homes. This would mean that you’d only use your entitlement one house at a time. If you decide to move, you sell your current home and pay off the VA loan. This releases the VA entitlement, allowing you to use it on your next owner-occupied property.
The VA does allow one exception to this rule, though. If you bought a home and then are transferred (military or civilian) or you outgrow the home you bought, you may keep that home and buy another that you consider your primary residence. You are then free to rent out your original home and use that money to pay the mortgage.
Some veterans use this method when they know they will eventually move back to the original area. They want to keep the home and make a little money off it while they are temporarily relocated to another area. The VA allows this to happen one time. Once you use your entitlement twice, you cannot do this again. In order to reuse your entitlement again, you’d have to sell the home and pay off the mortgage in order to release the entitlement.
Whether you use the entitlement as soon as you get out of the service or it’s 10 years later, it never expires. You will have full entitlement waiting for you whenever you are ready to use it. Once you use some of it, you’ll have to abide by the VA’s rules in order to use it again.