VA Second-Tier Entitlement or VA Bonus Entitlement

VA second-tier entitlement for a VA loan or Texas Vet loan, sometimes referred to as VA bonus entitlement, is an important feature of the VA home loan program. A veteran seeking a VA loan or Texas Vet loan for either a home purchase or a VA loan for a refinance might need to make use of second-tier entitlement under the following two circumstances.

• The Veteran currently has an existing VA loan on another property that will not be paid in full.

It is possible to have more than one VA loan at the same time. If a veteran has an existing loan on the home they currently reside in, or a rental property they lived in previously, the first step is to look at how much entitlement is tied up with that loan. Essentially entitlement is the amount of the loan that the VA guaranteed on the mortgage.

• The Veteran has a VA loan in the past that went into foreclosure or was included in a bankruptcy or short sale.

In the second case above, the VA would have suffered a loss on the prior VA loan, and part of the Veteran’s entitlement or eligibility is forfeited. The same thing applies as having an existing loan on another property, we need to determine how much entitlement was used on the previous loan. One major consideration is that with a prior foreclosure, bankruptcy or short sale, the veteran will likely have a two year waiting period before being eligible for another VA loan.

How to Calculate VA Second-Tier Entitlement for a Texas Vet or VA Bonus Entitlement

Below is an easy to understand example of how to calculate how much remaining entitlement would be available for a veteran who does not have their full entitlement, based on two of the most common scenarios.

Let's say you bought a $200,000 house with a VA loan. Later, you decide to move, for whatever reason. Instead of selling the home and paying off the VA loan, you decide to rent it out.

Here's how the math works, assuming you're buying in a county with the standard VA loan limit:

$766,550 x 25% = $191,637 Maximum Guaranty

$191,637 - $50,000 = $141,637 Bonus Entitlement Available

$141,637 x 4 = $566,548 Maximum Loan Amount With No Down Payment

In the example above, you could buy another home with your VA bonus entitlement up to a purchase price of $566,548 with no down payment requirement. Anything above that amount would require a down payment of 25 percent of the excess.

Just because you had a VA loan in the past that went into foreclosure or was included in a bankruptcy or short sale doesn't mean you can't get another VA loan. It's possible to qualify for another VA loan after the two year waiting period mentioned above.

The first thing would be to determine how much entitlement was lost due to the foreclosure and how much is left, if any.

Using the same example as above, let's say you had $50,000 of entitlement tied to a previous foreclosure and you wanted to buy a $200,000 house in a county with the standard loan limit.

The math in this case would be exactly the same as the example above.