The Basics

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Effective January 1, 2020, there is NO LIMIT to the price of a home that you can buy with a VA loan as long as you have FULL VA LOAN ENTITLEMENT.

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What does "No Limit" mean?

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As long as you financially qualify for the loan amount, the VA will guarantee it. 

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What does "Full VA Loan Entitlement" mean?

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For Active Duty or recently transitioned military personnel, you will generally qualify for "full entitlement" after serving 90 continuous days. (For more details on confirming whether you qualify or not, click here)

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If you have not used a VA loan already, you qualify for full entitlement. 

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If you have used a VA loan in the past, you may have reduced entitlement.

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How to determine remaining entitlement:​

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The first step in determining your remaining entitlement, is to determine the maximum entitlement in the county which you are looking to buy. To understand how this work, the VA guaranty is 25% of the loan limit. So to determine the entitlement in the county you are looking to buy, divide the loan limit by 4. 

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• Example: You want to buy a second home in San Diego County, with a VA Loan Limit of $701,500. So $701,500 / 4 = $175,375.   

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The next step is to subtract the entitlement that you have already used on your first house:​

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• Example: You bought your first home for $200,000 in Pensacola with a $0 down VA loan. The VA guarantees 25% of the loan amount, so $200,000 / 4 = $50,000. So you have used $50,000 in available entitlement.

 

Now to figure out how much entitlement you have left to use in San Diego, subtract the amount used ($50,000) from the maximum entitlement in San Diego County ($175,375), which equals $125,375 in available entitlement. 

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Since the entitlement is 25% of the loan amount, multiply $125,375 times four, and you can purchase a home for $501,500 with a $0 down VA loan.

  

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What if I want to buy a more expensive home?

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If your remaining entitlement is not enough to cover the purchase price of the second home you desire, you have a couple options:

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1. Refinance out of a VA loan and into a Conventional loan

2. Sell your first home

3. Pay 25% of the difference between entitlement amount and purchase price of the second home

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Option One: Refinancing

 

You could potentially refinance your first home "out of" a VA Loan, and "into" a conventional loan. This will be a good option if your first home has appreciated significantly in value, or if you have had it a while and have paid down the loan balance. Typically, in order to refinance the first home into a conventional loan, you will need between 20-30% equity in the home. If you are still living in the home as your primary residence, you may be able to refinance with 20% equity, but if it is not owner-occupied, it's more likely that a lender will require at least 30% equity. This comes out to what is called the Loan-to-Value ratio, or LTV. So the new loan will need to be approximately 70% of the value of the house. 

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• Example: You owe $150,000 on your Pensacola home, and the market value of the house is now $210,000. A new loan on the house will pay off the $150,000 owed with a new loan, and it's LTV is $145,000 / $210,000 = .69 x 100 = 69%

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Once the VA Loan has been paid off, your VA entitlement should be restored to 100%.

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Option Two: Selling

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If you don't have enough equity in your first home to refinance into a conventional loan, but you have enough equity to sell it and pay all the associated costs, then disposing of the property will therefore dispose of the VA loan, and restore full entitlement.

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Option Three: Pay 25% of the Difference between purchase price and entitlement amount 

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If Option One won't work for you, and Option Two is either not feasible or undesirable to you, the third option is to pay 25% of the difference in the purchase price and your remaining entitlement. The VA is essentially guaranteeing 25% of the entitlement amount, so in order to qualify for a loan greater than your available entitlement, you need to cover the difference.

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• Example: You want to buy a second home for $500,000 in San Diego County. You have $455,975 remaining entitlement, so the difference between purchase price ($500,000) and remaining entitlement ($455,975) is $44,025. So in order to buy the house for $500,000, you will have to put down 25% of $44,025, or $11,006.25.

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As a final point, the entitlement amount is not the only consideration when attempting to use a second VA loan. The VA Funding Fee also increases on subsequent uses of the VA loan. It is often a best practice to put at least 5% down on the purchase price for the subsequent use of a VA loan, unless you are exempt from VA Funding Fees. See the related article below for more information.

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Related: VA Funding Fees

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Additional Resources: Obtaining VA Certificate of Eligibility

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DISCLAIMER: The content presented here is for informational and illustrative purposes only. You situation may be unique and fall outside the scope of the information here. The intent is to get you to think about this situation, but not to take action. It is recommended that you consult with a qualified loan officer to help guide you through the VA loan process and the unique characteristics and requirements for the VA loan. 

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