Entitlement/Maximum Loan Amount
The Department of Veterans Affairs guarantees to a lender that it will be reimbursed for losses resulting from foreclosure, but there is a limit to the amount of that guaranty. This limit is currently $36,000 ($60,00 for loans over $144,000), which means that the VA will cover a lender's losses from a foreclosure up to $36,000 / $60,000. These numbers are what is known as the amount of Entitlement. If you have seen a Certificate of Eligibility (nowadays the form is green and about the size of a regular sheet of paper), you may have noticed these figures in the bottom half (on the reverse side of earlier forms).
The amount of Entitlement used depends upon the loan size. For example, a $40,000 loan would use $20,000 Entitlement, whereas an $80,000 loan would use $32,000, and any loan of $90,000 or more would use it all. If you have obtained a VA loan before, then you may have noticed where VA had written numbers on your Certificate reflecting "used" and "available" Entitlement amounts.
The amount that you can borrow with a VA loan depends upon three things: 1) your income and credit, i.e. the payment amount for which you qualify 2) the amount of Entitlement and 3) GNMA and market limitations.
The first item is very much a part of what you are involved in right now in the pre-approval process (If you are anxious to find out sooner, then call us at our toll-free number (800-421-1011); much can be done over the phone.). If you have never used you VA before, or if you had it restored (because you have sold the property and the loan was paid in full), then you almost certainly have full Entitlement - $36,000 / $60,000. If that is the case, and you qualify, then you can borrow up to $203,000; this maximum is a market limitation - VA does not establish a maximum loan - set by GNMA (See Nuts and Bolts Guide to a Mortgage Loan in this package. If a VA loan does not meet GNMA guidelines, then it pretty much can't be done.)
If you have used your VA before, and the loan is not paid off (or you still own the property even though the VA loan has been paid in full), then you may have your Entitlement restored one time only and purchase another residence (Note: for this one-time restoration to work, your must occupy the new property as your home, and you cannot have your Entitlement restored until both properties are sold, as well as paying in full the loan for the second property.). If, for whatever reason you are not eligible for Entitlement Restoration, you may also have what is known as "partial Entitlement." Aside from qualifying limitations, the amount you can borrow is set by GNMA as follows: the downpayment and Entitlement combined must equal at least 25% of the value (Value is defined as the lesser of sales price or appraisal.).
For example, assume $20,000 remaining Entitlement, and a price / appraisal of $100,000; 1) 25% = $25,000 2) $25,000 - $20,000 = $5,000 down payment requirement. You can figure it another way: the maximum loan equals 75% of the value plus Entitlement (75% of $100,000 = $75,000 + $20,000 = $95,000 maximum loan, which results in, of course, $5,000 down payment.).