Texas VA Home Loan Entitlement: A Guide for Qualified Borrowers
In our previous blog, we detailed 6 Reasons to apply for a Texas VA Home Loan. Did the reasons we cited help you decide on the type of home loan that suits your needs best? We hope the answer is yes. If you’ve singled out a Texas home loan among your other options, the next thing to do is prepare yourself financially as you move closer to making this most important financial decision. Let’s talk about the concept of entitlement to get the ball rolling in the right direction.
VA loan entitlement
Texas Lending has had previous encounters where our clients had different beliefs and notions about their entitlement. We would like to take the opportunity to set this straight. A VA loan entitlement is not the maximum loan amount a borrower can apply for. It is the maximum guaranty that the VA will pay to the lender in behalf of the borrower.
The primary entitlement
VA loan entitlement comes in two forms: the basic entitlement and the secondary tier, often referred to as the bonus entitlement. The basic entitlement is your primary entitlement as an eligible borrower. This fixed amount is equal to a quarter of the total of the home you want to purchase. But what if your entitlement doesn’t cover a quarter of your home’s loan value?
The bonus entitlement
The VA recognizes that there are some instances when the property that the borrower wants to purchase is too expensive. After all, the market value of a home depends on many different factors. When this happens, and the VA cannot cover a quarter of the loan through the primary entitlement alone, the bonus entitlement comes in.
The concept behind the bonus entitlement exists because the VA knows that some homes are more expensive than the others, therefore the fixed amount they provide a guaranty for, which should equal a quarter of the total amount of the cost of the property, will not suffice. To cover a quarter of the loan, VA borrowers will be given a bonus entitlement. It is important to note that the bonus entitlement will only be added to your primary entitlement if the total value of the property cannot cover a quarter of your home loan. In other words, the loan must exceed a certain loan amount in order for bonus entitlement to be used.
Applying for a another home loan
What about second loans? According to the VA, eligible borrowers may be allowed to purchase a second home. You can still use your entitlement for that loan. Remember though, your entitlement will not reset. The amount of the guaranty will depend on how much remained after your previous loan.
Understanding the concept of entitlement and how it works will help you significantly while choosing the right home and planning your finances for monthly mortgage payments. We encourage you to call your lender if you have specific questions about your entitlement.
Texas Lending is a family-owned mortgage lending company that helps families in Texas fulfills their dreams of home-ownership. Engage our loan officers for a more in-depth discussion about Texas VA home loans and other home loan options.