Disclaimer: This content may include information about products, features, and/or services that The Federal Savings Bank does not provide and is intended to be educational in nature.
Eligible veterans, active duty service members, and surviving spouses often wonder how their Veterans Affairs (VA) loan entitlement works after they’ve already used it. Can you use it again? How does the VA loan change over subsequent uses?
Even first-time users may be wondering what’s meant by the “Second tier” or “Bonus” VA entitlement. If you have some of these same questions, it’s important to get them answered before attempting to kickstart your VA loan process.
In this article, we will explain the VA loan entitlement, second tier entitlements, and how the VA loan restoration typically works for eligible borrowers.
What Is the VA Loan Entitlement?
Your VA loan entitlement is the amount of money available for your VA loan. The entitlement is split into two tiers:
- Basic or “First Tier”
- Bonus or “Second Tier”
The basic entitlement is for loans less than or equal to $144,000, with the VA guaranteeing up to $36,000 of that. For loans above $144,000, you would need to use your bonus entitlement, which we will talk about shortly. To be able to use your VA loan’s 0% down payment advantage, you will most likely need to have your full entitlement available.
Without your full entitlement available, your remaining entitlement will be based on the loan limit for the county in which you are buying subtracted by the amount of entitlement you’ve already used.
Your Certificate of Eligibility (COE) will show your lender how much of your entitlement is available. However, the COE doesn’t explicitly mention the amount available from your bonus entitlement. Instead, it makes a note that there may be a possibility for additional entitlement if you have it available.
If you have previously used your entitlement, and it has not been restored, your available entitlement will decrease by the amount you used on your previous loan. This doesn’t necessarily mean you would not be able to get a loan, but it may require extra steps, such as applying for a loan restoration or providing a down payment.
Second-Tier Entitlement Explained
As stated above, veterans may have access to a bonus, or second-tier, entitlement with their VA loan. The second-tier VA entitlement is often needed, as many home prices these days are greater than $144,000. When you attempt to use your VA loan to buy a home, the bonus entitlement limit is generally up to 25% of the conforming loan limit for your area.
So, if you plan to get a mortgage for a home worth $500,000, you may end up using $125,000 of your VA entitlement (that’s 25% of the loan amount). You could then determine your bonus entitlement by subtracting $36,000 (your basic entitlement) from $125,000. That would come out to $89,000 worth of second-tier entitlement.
Finally, it’s important to note that just because you have your full entitlement available, does not mean your lender will approve you for any loan amount. You will still need to prove to your lender that you can afford the loan, likely based on factors including, but not limited to:
- Your credit history and score
- Income
- Debts
- Assets
Restoration of VA Entitlement
If you have previously used your VA loan, you may need to apply for a restoration of entitlement for future uses. You could be eligible to apply for a restoration of entitlement if you meet the following criteria:
- You have sold the home you bought with your VA loan and paid off the loan in full.
- Your loan is assumed by an eligible veteran, and they substitute their VA entitlement for the original loan amount.
- You have repaid your VA loan in full but have not sold the home. Note: Borrowers can only do this specific scenario one time. The home being purchased must also become the borrower’s primary residence.
If you meet one or more of those requirements, you may be able to restore your full entitlement. Refer back to the VA or your lender for specific guidance on entitlement restoration, including how to submit your request to the VA.
As we mentioned previously, with the full entitlement, eligible borrowers may be able to get a new VA loan while still providing zero down payment.
Documents for Restoration of Entitlement
If you are applying for a restoration of your previously used entitlement, you may need to provide some of the following documents, as applicable to your situation:
- Statement of Service. Active duty personnel should submit this document.
- DD14. Veterans who have previously served on active duty should submit this document with their type of discharge.
- Points Statement. Reservists or National Guardsmen should submit a Points Statement displaying six years of service.
- HUD-1, Mortgage Payoff Statement, or Settlement Statement. If you’ve paid off your previous VA loan, you should submit one of these three documents as verification.
Of course, your lender may have distinct requirements beyond those, so be sure to communicate with them about the needed documentation for your restoration of entitlement.
Final Thoughts
For eligible veterans, active-duty service members, and surviving spouses, the VA loan can be accessible for your lifetime. However, if you plan to reuse your VA loan, be sure that you understand how the entitlements work and whether or not you can restore yours. We hope this article gave you some helpful information about that process and how it works.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
