VA 2nd Tier Entitlement Or Bonus Entitlement
Most people think you can only have one VA loan out at one time but that’s not true under the VA 2nd Tier Entitlement.
Here are several examples of how you can use the VA 2nd tier entitlement to buy another home using a VA mortgage.
The following examples illustrate some common situations involving VA loans. They are by no means comprehensive. Due to variations in the amount of entitlement available to an individual veteran, loan limits for individual counties, and purchase prices for homes, situations may arise which are not covered here.
Example 1
Veteran has full entitlement available, and is purchasing a home for $300,000 where the county loan limit is $417,000.
$417,000 X 25% = $104,250 Available Entitlement
$300,000 X 25% = $75,000 Guaranty and Down Payment Combination Required. Since VA’s guaranty is limited to the lesser of 25% of the county loan limit or 25% of the loan amount, VA will guaranty $75,000 on Veteran’s $300,000 loan in this county. A down payment should not be required.
This example has nothing to do with the VA 2nd Tier entitlement but it does give you an idea of how VA entitlement is calculated which is going to be the basis for every other example below.
Example 2
The Veteran has used $48,000 of entitlement on a prior VA loan, which may not be restored, and is purchasing a home for $320,000 where the county loan limit is $625,000. We need to calculate the total available entitlement in order to figure out the maximum VA 2nd Tier entitlement. To do this you take the VA county loan limit and multiply by 25% so it looks like this -$625,000 X 25% = $156,250 which is the maximum VA entitlement available. To determine exactly how much VA 2nd Tier entitlement the veteran has available we’re going to subtract what’s been used from the the maximum amount available which would look like this – $156,250 – $48,000 = $108,250 VA 2nd Tier Entitlement available. Now we’re going to figure out how much that will cover on a new VA loan. Take the available entitlement of $108,250 and multiply it by 4 & you get $433,000. This is the maximum new VA loan amount with out a down payment.
Example 3
Veteran has used $104,250 of entitlement on a prior loan, which may not be restored, and is purchasing a home for $380,000 where the county loan limit is $815,000.
$815,000 X 25% = $203,750 maximum VA entitlement available
$203,750 – $104,250 = $99,500 VA 2nd Tier Entitlement
$99,500 X 4 = $398,000 maximum loan amount using the VA 2nd Tier Entitlement
Since the proposed loan amount will be less than $398,000, the lender will receive 25% VA Guaranty on the loan of $380,000 so a down payment would not be required.
Now we’re going to look at a couple of examples where a Veteran would need a down payment when using the VA 2nd Tier Entitlement.
Example 4
Veteran has full entitlement available and is purchasing a home for $480,000 where the county loan limit is $417,000.
$417,000 X 25% = $104,250 Entitlement Available
$104,250 / $480,000 = 21.72% Guaranty
Since VA’s Guaranty will be less than 25%, a down payment will likely be required to meet investor requirements.
$480,000 X 25% = $120,000
$120,000 – $104,250 = $15,750 Down Payment.
Example 5
Veteran has used $27,500 of entitlement on a prior loan, which may not be restored, and is purchasing a home for $320,000 where the county loan limit is $417,000.
$417,000 X 25% = $104,250 Maximum Guaranty
$104,250 – $27,500 = $76,750 VA 2nd Tier Entitlement available.
$76,750 / $320,000 = 23.98% Guaranty
$76,750 X 4 = $307,000 Maximum Loan Amount with 25% Guaranty
Since VA’s Guaranty will be less than 25%, a down payment will likely be required to meet investor requirements.
$320,000 X 25% = $80,000
$80,000 – $76,750 = $3,250 Down Payment on the VA 2nd Tier Entitlement
As you can see the VA 2nd Tier Entitlement is a great option for Veterans looking to buy a new home.
If you have questions about the VA 2nd Tier Entitlement or you want to see how much you qualify for, feel free to call us at (877)228-9069 or fill out the form below.
