What’s a Certificate of Eligibility?
As a Veteran, your Certificate of Eligibility (COE) determines whether you can participate in the VA loan program. It also lets you know your VA loan entitlement amount. But what does that mean? Does your VA entitlement amount limit how much you can borrow? It all depends on your individual situation. Assessing your entitlement is where to start.
Big changes on loan limits.
Due to legislation called the Blue Water Navy (BWN) Vietnam Veterans Act of 2019, starting in 2020 the rules on VA loan limits changed to help Veterans. For example, the yearly VA loan limits review is no longer in place for many. Instead, Veterans enjoying full entitlement (those who have no eligibility tied up in other properties with a VA loan) have no loan limits to the amount they can borrow. For Veterans with partial entitlement (those who currently have a home with a VA loan or have lost a home due to foreclosure, bankruptcy, etc.), your loan limit is based on the maximum eligibility in the county where the home you are purchasing is located.
If you have partial entitlement, the maximum VA guaranty on your combined VA loans cannot exceed 25 percent of the loan limit for the area in which you are buying to utilize 100 percent financing. This means you may be able to enjoy a $0 down payment VA loan, but the available entitlement must be at least 25 percent of your loan. You are able to exceed this amount, but a small down payment may be required.
What does full entitlement mean?
Veterans with full entitlement do not technically have a loan limit. You can borrow up to what your lender is willing to loan you, based on factors like credit history, income, and assets and what you can afford. You have full entitlement if you meet any one of these requirements:
- You’ve never used your home loan benefit, or
- You’ve paid a previous VA loan in full, sold the property, and put in a request for the VA to restore your entitlement (this would restore your full entitlement, more on this later), or
- You’ve used your home loan benefit, but had a foreclosure or compromise claim (a.k.a. “short sale”) and repaid the loan in full
If your COE reads, “This Veteran’s basic entitlement is $36,000,” then you have full entitlement. Just know that figure doesn’t represent the total amount you can borrow. It means that if you default on a loan that’s less than $144,000, the VA will guarantee your lender a return of up to $36,000. For loans exceeding $144,000, the VA guarantees to pay the lender up to 25 percent of the loan amount if you default.
It bears repeating: Veterans with full entitlement do not have a home loan limit. You are only limited by how much your lender determines you can borrow.
What if you have partial entitlement?
Does your COE show an amount other than $36,000? Then you have partial or remaining entitlement. In other words, the entitlement that remains after a prior VA loan. This means that you have a loan limit. In this case, your loan limit is determined by the county loan limit where you live.
So, if you default on the loan, the VA will pay your lender up to 25 percent of the county loan limit minus the amount of your entitlement that you’ve already used. If you keep your current loan in good standing, however, you can use your remaining entitlement (either on its own, together with a down payment or by utilizing “bonus” or “tier 2” entitlement,” to take out another VA home loan). Tip: If your lender isn’t familiar with bonus entitlement, it’s time to move on to one who specializes in VA home loans.
Did you know?
A down payment may be required for borrowers with partial entitlement. If your available entitlement is less than 25 percent of your new loan, then your VA loan will need a down payment—but only for the portion of the loan not covered by the VA program. Even with a down payment, a VA loan still offers the least amount of out-of-pocket expenditure compared to other programs. There are also situations where a Veteran with partial entitlement can utilize 100 percent financing.
Does zero entitlement mean no loan?
Does your COE say, “This Veteran’s basic entitlement is $0?” This means you’ve used your VA home loan benefit before, and you don’t have any remaining entitlement. Good news: Entitlement can be restored. For more information about this process, read on.
How can I restore my entitlement?
There are three ways to restore previously used VA entitlement:
- Sell the original property, repay your current VA loan in full, and submit a request to the VA for restoration of entitlement. Simply fill out a Request for a Certificate of Eligibility (VA Form 26-1880) indicating this information and send it to the VA regional loan center for your state (your Loan Officer can also help with this request).
- Apply for a one-time restoration of entitlement. In this case, you need to satisfy your loan but do not need to sell your first property. (Use the same VA Form listed above).
- Find an eligible and qualified Veteran to assume your loan and substitute their entitlement for the same amount of entitlement you used originally. This is typically done through your current lender.
- Allow a non-Veteran to assume your VA loan to use your property as a principal residence. The drawback to this option is that you will lose your entitlement until the home is sold and the loan is paid off in full.
Like your loyalty, your VA loan entitlement is lifelong. Let our experienced team help you understand your COE and explore your home loan options.
