VA Loan Guaranty Guide: Changes, Calculations, and Entitlements in 2024

In this article, we'll break down everything you need to know about these changes, including how loans are calculated whether you're buying, refinancing, or building a home.

We'll make it easy to understand how your past use of VA loans and certain rules about loan limits could impact your next home purchase.

What is a VA Loan Guaranty?

A VA loan guaranty is like a safety net from the Department of Veterans Affairs. It tells the bank that if you can't pay back your loan, the VA will help cover some of the losses.

Because of this promise, banks are more comfortable lending you money without needing a down payment or extra insurance.

If you have full rights to this benefit, the VA guarantees to cover a quarter of your loan amount over $144,000, which makes it easier for you to get a bigger loan under better conditions.

Essentially, this guaranty makes buying a home more accessible and affordable for veterans.

How VA Loan Guaranty Are Calculated

When you're getting a VA loan, the amount the Department of Veterans Affairs guarantees—or promises to pay the lender if you can't—depends mainly on two things: whether you've used your VA loan benefit before and the price of the home you're buying.

If it's your first time using a VA loan or you've repaid a previous VA loan in full and had your benefit restored, you're considered to have full entitlement.

This means the VA guarantees 25% of your loan amount, no matter how much the house costs, as long as it's more than $144,000.

So, if you're buying a home for $200,000, the VA would guarantee $50,000 of that loan.

However, if you've used some of your VA loan benefit before and haven't restored it, you have what's called partial entitlement.

The calculation here gets a bit trickier. You start with the county loan limit where you're buying your house—let's say it's $600,000 for simplicity. The VA guarantees 25% of that limit, minus any entitlement you've already used.

So, if you've previously used $50,000 of your entitlement and you're buying another $200,000 home, the VA calculates 25% of the $600,000 county loan limit, which is $150,000, then subtracts the $50,000 you've used.

That leaves you with a $100,000 guarantee from the VA for your new home.

In both scenarios, the VA loan guaranty helps you get a loan without a down payment and without needing private mortgage insurance, which can make buying a home more affordable for veterans.

How Buying, Purchasing, and Refinancing Changes the VA Guaranty Calculation

When you use a VA loan for buying a home, refinancing, or building one, the way the VA calculates its guaranty can vary slightly depending on the loan's purpose, but the core idea remains centered around ensuring lenders are protected.

Here’s how it works in everyday terms, using a simplified approach without lists for different loan types:

Buying a Home

If you're purchasing a home and have full entitlement, the VA promises to cover 25% of your loan amount. For instance, on a $200,000 home, the VA would guarantee $50,000.

If you have partial entitlement because you've used some of it on a previous loan, the guarantee is adjusted based on what you've already used and the county loan limit, potentially reducing the guaranty amount.

Refinancing

When refinancing with a VA loan, the guaranty calculation doesn't change much. If you're doing a cash-out refinance, the VA still covers 25% of the new loan amount.

This support encourages lenders to offer better terms, such as lower interest rates, even if you're taking cash out of your home's equity.

Construction Loans

For those building a new home with a VA loan, the guaranty calculation follows the same principle. The VA guarantees 25% of the loan amount, which helps secure financing for construction.

This guaranty is particularly beneficial since construction loans can be riskier for lenders, given that the loan is for a home not yet built.

In all these scenarios, the VA's guaranty means you can often borrow with no down payment and avoid paying mortgage insurance, which makes getting, refinancing, or building a home more accessible and affordable for veterans.

The actual amount of guaranty depends on factors like whether you have full or partial entitlement and the price of the home or construction project, but the foundation of the calculation is designed to make using the VA loan benefit as advantageous as possible for veterans.

How The Previous Use of Entitlement Affects a New VA Loan Guaranty

When you've previously used some of your VA loan entitlement, it affects the amount of guaranty you can receive on a new VA loan.

Here’s a straightforward explanation without diving into complicated math:

Think of your VA loan entitlement like a cup of coffee. The first time you use it, you have a full cup. If you buy a home with a VA loan, you drink some of that coffee. The amount you drink (use) is the portion of your entitlement you've used up.

Now, if you want to use your VA loan benefit again for another home, you only have the amount of coffee left in your cup to use.

This means the VA's guaranty, or the part of the loan they promise to cover, might be smaller because you have less entitlement available. The less guaranty the VA can offer, the less borrowing power you might have without a down payment.

But there's a way to refill your cup. If you sell your first home and pay off the VA loan, you can apply to have your full entitlement restored. This is like getting a full cup of coffee again, so you can enjoy the full VA loan guaranty on another home.

However, if you don't restore your entitlement and still have some left, you can still use it towards another VA loan. The amount of guaranty available for the new loan will just be based on what's left of your entitlement and the county loan limits where you're buying the new home.

In essence, your previous use of VA loan entitlement directly influences how much guaranty you can get on a new loan, affecting your buying power and possibly requiring a down payment if the guaranty plus your remaining entitlement don't cover 25% of the new loan amount.

VA Loan Guaranty Calculation for No Entitlement Situations

When you find yourself in a situation where you have no VA loan entitlement left, it can seem like you're out of options for using VA loan benefits again. This typically happens if you're still owning and holding a VA loan on another property.

Here's how it impacts your ability to secure a new VA loan guaranty:

Without any entitlement left, the VA can't provide its guaranty on another loan. This guaranty is essential because it's the VA's way of assuring the lender that part of the loan is backed by them, which usually enables the benefits of no down payment and no private mortgage insurance. Without it, the loan can't proceed under the VA's favorable terms.

However, it's not the end of the road. There are a couple of ways to navigate this situation. One option is to sell the property tied to the initial VA loan, fully repaying that loan, which can restore your entitlement to its full capacity.

Another route is seeking a one-time restoration if you've repaid the original VA loan in full but decided to keep the property. This restoration allows you to reuse your VA loan benefits, albeit under specific conditions and limitations.

If neither of these options is viable or appealing, you may need to look into other types of loans for your next home purchase or wait until you can restore your entitlement.

While a no entitlement situation limits your immediate use of VA loan benefits, it doesn't permanently remove your ability to use them in the future, provided you take steps to restore your entitlement.

VA Loan Guaranty FAQs

Navigating the VA loan guaranty process can be complex, but understanding a few key aspects can greatly simplify it for homebuyers.

Here are the top FAQs designed to help you make the most of your VA loan benefits.

How is the VA loan guaranty calculated?

The VA loan guaranty is calculated at 25% of the loan amount for those with full entitlement.

This means if you're eligible and have not used any of your entitlement, the VA guarantees a quarter of your loan amount to the lender.

What changed with the VA loan guaranty calculation after the Blue Water Navy Vietnam Veterans Act of 2019?

The Blue Water Navy Vietnam Veterans Act of 2019 removed the loan limits for veterans with full entitlement.

Now, veterans can borrow above $144,000 without being constrained by county loan limits, with the VA guaranteeing 25% of the loan amount.

How does full entitlement affect VA loan guaranty for loans over $144,000?

With full entitlement, veterans can get a loan of any amount above $144,000, with the VA guaranteeing 25% of the loan without a maximum limit, provided the lender approves the loan amount.

What is partial entitlement and how does it affect VA loan guaranty calculation?

Partial entitlement occurs when a veteran has already used a portion of their VA loan benefit.

The guaranty is then calculated based on the remaining entitlement and the county loan limit, which might reduce the total loan amount the VA guarantees.

How do county loan limits impact the VA guaranty amount?

County loan limits come into play for veterans with partial entitlement.

The VA guaranty for a loan above $144,000 is limited by these loan limits, affecting the maximum loan amount a veteran can secure without a down payment.

Can you provide examples of VA guaranty calculation for purchase, refinance, and construction loans?

For all these loan types, if a veteran has full entitlement, the VA guarantees 25% of the loan amount. The calculation doesn't significantly change between purchasing, refinancing, or building a home.

How does the previous use of entitlement affect a new VA loan guaranty?

Previous use of your entitlement reduces the amount available for a new VA loan.

The remaining guaranty is calculated based on what's left after subtracting any entitlement you've used from the maximum available to you.

What is entitlement restoration and how does it impact VA loan guaranty?

Entitlement restoration replenishes your VA loan benefit to its original amount after you've repaid a VA loan in full. This allows you to use the full VA guaranty on future loans, essentially resetting your eligibility.

In a no entitlement situation, how can a VA loan guaranty be calculated?

If you have no entitlement available, the VA cannot guarantee any portion of a new loan.

To regain eligibility, you must restore your entitlement by repaying your existing VA loan in full or by selling the property and paying off the VA loan.

What is a one-time restoration of entitlement and who is eligible?

A one-time restoration of entitlement allows veterans to restore their full VA loan benefit even if they haven't sold their previous home, provided they've repaid their original VA loan in full.

This is available once per veteran and enables them to use their VA loan benefits again under full guaranty conditions.

Bottom Line

Understanding the VA loan guaranty and how it's calculated is essential for veterans looking to maximize their homebuying benefits.

Whether you're buying, refinancing, or constructing, knowing your entitlement and how county loan limits may affect your loan can lead to more favorable loan terms.

Restoring your entitlement or taking advantage of a one-time restoration can further enhance your ability to use your VA benefits to their full extent.

With the right information and planning, veterans can navigate the VA loan process more effectively, making homeownership more accessible and affordable. Ready to find your dream home in Florida?

Let MakeFloridaYourHome guide you through the process with expert advice and personalized service.