How The VA Guarantees a Loan
The Department of Veterans Affairs offers a guaranty to lenders for VA loans, protecting lenders against loss in the event of foreclosure. In such an event, the VA will guaranty the lender up to 25% of lossed loan revenue, thus providing a safety net of risk and encouraging lenders to make more VA loans.
Entitlement is the dollar amount of the guaranty the VA is willing to provide for your loan. Basically, it’s your 25% guaranty budget given to you by the VA, and you can tap into it for a single home, or spread it out across multiple homes should you move and want to purchase a new primary residence.
If full entitlement is available to you, then no down payment is needed. If you only have partial entitlement then you may need to come up with a down payment for the difference between your remaining entitlement and 25% of the home value.
For those who have dipped into their entitlement on a previous home (and still own that home), you may still have some entitlement remaining to apply towards another primary residence. The maximum amount of entitlement available to you is linked to the county loan limits that the property lies in.
The lender will reference a Certificate of Eligibility from the VA on your behalf in order to determine how much entitlement you have available. You may also obtain a Certificate of Eligibility yourself by completing VA Form 26-1880. Call the VA (877-827-3702) to find out which regional loan center to submit your request to.