If you’re eligible for the VA home loan benefit and want to finance a purchase with as little cash to close as possible there really is no better option. VA loans carry very competitive rates, no monthly mortgage insurance and no down payment required. The veteran is also limited to the types of closing costs to be paid on a home loan. But what many are not aware of is that the veteran can use the VA loan benefit to more than once. Let’s take a closer look at the different scenarios when financing a purchase with a VA loan.
Lenders verify eligibility for a VA home loan by obtaining a copy of the borrower’s Certificate of Eligibility. This form is received directly from the VA and can be requested by the borrowers or by the lender on behalf of the borrowers.
The common scenario is when a veteran gets a contract to sell their current home. The buyers come to the closing table with their own financing or paying cash in some instances. The veteran also has another home under contract and has a pre-approved loan. The veteran needs the proceeds from the sale of their current house to help cover costs associated with the second purchase. But the VA will not be able to officially “restore” the entitlement sometimes weeks after closing. However, VA approved mortgage companies does allow for the lender to collect a copy of the settlement statement showing when the loan closed and use the statement in lieu of an updated certificate of eligibility.
Finally, a veteran can have a portion of their VA entitlement remaining if the initial amount was not used completely. This takes a bit of math to explain and it doesn’t happen very often but it is still an option. First, VA loans are guaranteed to the lender in the amount of 25% of the loan amount. When a lender orders the certificate of eligibility it will show the amount of entitlement available. Today, that amount is $36,000. Four times $36,000 (remember the 25% guarantee) is $144,000. That is the amount of the loan the VA will guarantee. However, for loan requests above that, the maximum loan amount the VA will guarantee is the same as the conforming loan limit which is currently $424,100, higher in so-called “high cost” areas.
Yet there can be a partial entitlement remaining and the veteran can use what is remaining if the previous VA loan is not paid off. For example, a veteran buys a home, lives in it a few years and later decides to move and keep the property as a rental. The original home was priced at $100,000 and the lender would guarantee 25% of that amount upon the closing, or $25,000. In this scenario, there is $11,000 of original entitlement available. That’s $36,000 - $25,000 = $11,000. The loan amount is then four times $11,000 or $44,000. This is usually how remaining entitlement works out. The newly guaranteed loan amount is too low for most purchases.
Eligible VA home buyers will incur a higher funding fee for second time use. The current VA funding fee is 2.15% for first-time use. Any subsequent use and the funding fee increases to 3.3%. Note: Funding fees are reduced for home buyers putting down 5% or 10% down payment. In addition, there are certain funding fee exceptions for disabled vets. Please read more about VA loan guidelines here.
Please contact Coast 2 Coast with questions by calling (904) 810-2293
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