As a veteran, you may have home loan entitlement. This allows you to secure 100% financing for a home purchase. It may even allow you to purchase a second home down the road if your situation changes. What if you don’t use your benefit right away, though? Does it ever expire?
Luckily, your benefit never expires. Whether you use it today, next year, or ten years from now, it’s always there. Outside of the risk of it expiring, though, you should know a few other things about how to qualify for your VA loan benefit.
Serve Enough Time
The most important thing is that you serve enough time in order to be eligible for entitlement. Today, this means serving 90 days during wartime or 181 days during peacetime. If you served in the Reserves, you’ll need six years of service. In addition, you’ll need a positive discharge. If you meet those simple requirements, chances are you’ll have the VA loan benefit.
The Amount of Entitlement
If you prove you served adequate time, you automatically get basic entitlement. This means $36,000. The VA guarantees 25% of the loan amount. With a $36,000 guarantee, you could get up to a $144,000 loan.
In many areas, $144,000 isn’t enough. In these cases, the VA also offers ‘ bonus entitlement.’ Today, this means an additional $77,275 guarantee. The VA allows loans up to the national conforming limit. This limit is $453,100 for 2018. This gives you the opportunity to purchase a home for $453,100:
$77,275 x 4 = $309,100
$309,100 + $144,000 = $453,100
However, this doesn’t mean every veteran can get a loan as high as $453,100 with VA financing. They must prove they can qualify.
Qualify for the Loan
There’s a difference between being eligible for a loan and qualifying for it.
Eligibility means the VA determined you met the required conditions and that they will guarantee a loan in your name. But, that doesn’t mean that you qualify for the full $453,100.
Now you must prove that you qualify for the loan, much like you would any other loan.
It all starts with the credit score. You’ll need at least a 620 for the VA. Many lenders require an even higher score, though. Check with different lenders to see what they require.
You’ll also need to prove you have the income to afford the loan. Generally speaking, the VA allows a debt ratio up to 43%. Again, different lenders may have different requirements. They may not allow a ratio as high as 43%.
The VA focuses on your disposable income, rather than your debt ratio. They require borrowers to have a certain amount of money left each month after paying their bills. They feel this is a better measure of what veterans can afford. They base the amount of disposable income you need on your family size and your location. Lenders, however, tend to put more focus on the debt ratio.
In order to prove you can afford the loan, you’ll need to provide proof of your income. This means your last two paystubs as well as your W-2s or tax returns from the last 2 years. The lender will look for consistency throughout those two years. If your income decreased at all, it could be a red flag. If you changed jobs within that time, it could also be a red flag.
You must prove to a lender that you can afford the loan beyond a reasonable doubt.
Using Your Entitlement
It’s a common myth that you can use your entitlement only one time. You are free to use it repeatedly if necessary. Generally, this means paying off the original loan and selling the home. It doesn’t always look that way, though. In some cases, you can hold two VA loans using your entitlement.
The most common example of holding two VA loans at once is the veteran that got reassigned to another station that is too far from his current home. If he can’t comfortably commute, he may apply to use his remaining entitlement on another home. If he has a reason to keep the original home, he may be able to if he can prove he can afford both loans at the same time.
In some cases, entitlement gets used and you can’t get it back. This occurs most often when a borrower loses their home in foreclosure. You cannot reinstate that part of your benefit – it’s gone forever. However, if you have any remaining unused benefit, you can use it for a subsequent home purchase after waiting the few years the VA requires you to wait after a foreclosure.
VA entitlement never expires and it can be reused. It’s a great benefit offered to our veterans as a thank you for serving our country.