Breaking Down the VA Loan: How Much Money Can You Get?
How much money you can get from VA loans depends on many things. Whether you are a first-time recipient or a returning one, we will explain everything you need to know in order for you to get the most out of your VA loan.
Before we look at all the fun numbers, you should be fully aware of all the benefits, options, and eligibility guidelines that are clearly outlined in the sections below.
What are the Benefits of a VA Loan?
Supported by the Department of Veteran Affairs, VA Home loans are one of the many perks for past and present members of the military community. They help veterans and active service members buy a home or refinance an existing loan. As a lifetime benefit, these loans can be used multiple times, and returning recipients can still get a lot of money, depending on the loans’ sizes and the location of the homes bought.
VA Home loans require no down payment or Private Mortgage Insurance for the entire life of the loan. These loans also offer low interest rates, low closing costs when buying a home, and no penalty fee for paying off the loan earlier than expected.
First-time recipients also have no limits to the size of the loan they receive.
Another valuable benefit is called a VA loan guarantee. This means that the federal government promises to repay your lender part of the loan in the cases of default and foreclosure. The amount of money the government promised to repay is called your entitlement. Its size determines the size of the loan you can receive. For returning loan recipients, you may be able to restore your entitlement. If so, your second loan may also come without a loan limit depending on your financial history.
Unlike other home loans, you could still secure a VA Home loan even if you have experienced a prior bankruptcy or foreclosure.
What Can You Do with a VA Loan?
With a VA Home loan, you can buy a single-family home, townhouse, or multifamily units (these units are limited to 4 units per loan). You can also purchase a condo in a project approved by the VA or a manufactured home and lot. If you want to build your home, your loan must be approved before construction starts, and your money will pay the builder during the construction.
When you buy a home, you have the option to take over or “assume” the seller’s VA loan. This means that you would apply your loan toward the seller’s mortgage and make payments on their loan. Your interest rates would be those chosen by the seller’s lender when they first got their loan, so you may end up paying a lower interest rate than the national average. If you are the seller and someone uses their VA Home loan to assume yours, you may be able to fully restore your entitlement which would allow you to purchase a new home without worrying about a down payment.
Who is Eligible for a VA Home Loan?
Since VA loans are meant for the military community, active service members, veterans, and National Guard and Reserve members can be eligible as well as some spouses and those affiliated with specific military organizations. In addition to some specific eligibility requirements, you also must live in the home you buy with your loan and have enough money to pay for the VA appraisal and closing costs of buying your home.
How Much Money Can You Get…?
The amount of money you can get with a VA loan depends on whether you are a first-time user or not. If you are a first-time user, you will have full entitlement because you have not used any of your entitlement before. If you are a returning VA Home loan recipient, you will have partial entitlement which means the amount of the loan the VA will back varies on your situation. Returning recipients may also be able to restore your entitlement. If you can, you will be eligible for all the benefits of having a full entitlement.
…with Full Entitlement?
All eligible, first-time VA loan users have full entitlement. This means that, in addition to no required down payment, there is also no limit on the VA guarantee of the loan you can receive for loans over $144,000, and the VA will back up to 25% of the loan amount.
The actual amount of money you receive will be determined by your lender. They will examine your credit history, your income, and your assets. They may also require a minimum credit score, so be sure to carefully compare several lenders before choosing one.
…with Partial Entitlement?
Returning VA Home loan recipients will have partial entitlement if they want to buy another home and not sell their current home. If you have partial entitlement, you do have a limit on the maximum VA loan guarantee you can receive. You can still be able to get a good-sized home loan, but the VA will not back all of it. They will only back the amount of the loan that is covered by your remaining entitlement.
Your remaining entitlement is 25% of the Federal Housing Finance Agency (FHFA) Conforming Loan Limit of 1 unit in the county you want to buy your next home in minus the entitlement you have already used. Let’s break all that down:
- The FHFA Conforming Loan Limit is based on the average home values in a particular county. These loan limits increase as the overall value of homes increases.
- So, the VA uses these loan limits to estimate the amount of money you would need to buy a single-unit home in a particular county.
- To find out this estimate (which doubles as your remaining entitlement), just multiply .25 by the conforming loan limit of the county where you plan to buy your next home. You then need to subtract this number from the amount of entitlement you have already used. You can find out your used entitlement on your Certificate of Eligibility (COE). Your equation will look something like this:
Remaining Entitlement = (.25 * County’s Conforming Loan Limit) – Used Entitlement
Once you know your remaining entitlement, you can estimate the maximum VA loan guarantee you can get on your next loan. This maximum is very important because your lender may require a down payment depending on the size of your VA loan guarantee.
How to Estimate Your VA Loan Guarantee
As previously mentioned, if you have full entitlement, there is no limit to the amount of money the VA guarantee on your loan. They will back up to 25% of the loan, so if you take out a bigger loan, they will be guaranteeing a larger amount of money.
If you have partial entitlement, you do have a limit, or a maximum, on your VA loan guarantee. The maximum guarantee is determined by comparing your remaining entitlement to the loan limit of the county you want to buy in.
Example 1: VA Guarantee Fully Backs Loan
For example, imagine the county loan limit is $700,000, and you have used $75,000 of your entitlement on your first loan of $300,000. You now want to get a second loan of $400,000.
- First, find your remaining entitlement by calculating 25% of the county loan limit and subtract your used entitlement
(.25 * $700,000) – $75,000
$175,000 – $75,000
$100,000
- Next, multiply your remaining entitlement by four to calculate how much money you can get without making a down payment.
$100,000 * 4
$400,000
So, in this case, the VA will back $400,000. Since this was the size of the loan you were wanting to get, you would not have to make a down payment. The VA guarantee covers what would have been your down payment.
Example 2: VA Guarantee Does Not Fully Back Loan
Now, imagine the county loan limit is $500,000, and everything else is the same as in the first example. You have used $75,000 of your entitlement on your first loan of $300,000, and you now want to get a second loan of $400,000.
- First, find your remaining entitlement by calculating 25% of the county loan limit and subtract your used entitlement
(.25 * $500,000) – $75,000
$125,000 – $75,000
$50,000
- Next, multiply your remaining entitlement by four to calculate how much money you can get without making a down payment.
$50,000 * 4
$200,000
So, in this case, the VA will only back $200,000 of the $400,000 loan you were wanting to get. You can still get the bigger loan you were wanting, but you would have to make a down payment to cover the $200,000 that the VA would not cover.
How Do You Restore Entitlement?
If you do not have any entitlement remaining, you may want to restore it so you can get the same amount of money first-time VA loan recipients would get. You may be able to restore your entitlement if one of the following is true for you:
- You have fully repaid your VA Home loan and already sold the home that you bought with that loan.
- You have fully repaid your VA loan, but you have not sold the home that you bought with that loan (this option can only be used one time).
- An eligible VA recipient assumes your VA loan. They must use their own entitlement to match the entitlement you used when you first received that VA Home loan.
If you are a buyer wanting to assume the seller’s loan, just remember that you would be making payments on the seller’s loan. The interest rates would be the same for you as they were for the seller, so you may be paying a lower interest rate than the national average.
If any of the above applies to you, you can fill out this form and just select “Yes” for section 10 and write the loan’s date and the address of the home that you had bought where prompted. Now, you will just need to mail the form to your regional VA office as indicated on the last page.
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What’s Next?
And that’s it! Now that you know how much money you can get with a VA loan, you can take the next steps to apply for yours.
Frequently Asked Questions
What do I need to know before applying for a VA loan?
How do I close on a home with a VA loan?