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There are many questions that people have when it comes to VA loans, and entitlements are one of the more common ones. Let’s take a brief look at VA loan entitlements to see how they affect your borrowing power.
This article explains how VA loan entitlements work for home buyers in Washington State and Oregon, our main service areas. Specifically, it explains why the actual loan amount could be several times larger than the “entitlement” figure shown in the Certificate of Eligibility.
VA home loans are a popular financing option among military members and veterans in Washington State. And it’s easy to understand why. This program allows borrowers to buy a home with no money down, while avoiding mortgage insurance at the same time. There’s no other program quite like it.
One of the most common questions about VA loans has to do with the “entitlement.” Some home buyers receive their Certificate of Eligibility (COE) from the VA and are surprised to find that they are only entitled to $36,000 or 25% of the loan amount. The reaction that follows usually goes something like this:
“What do you mean I’m only entitled to a VA loan of $36,000? Why is it so low? How could I possibly buy a house for that amount of money?”
Here’s the short answer: Generally speaking, the entitlement amount is not what the borrower receives from the lender. In fact, a mortgage lender might be willing to offer a home loan for several times that amount. The entitlement is basically the dollar amount the Department of Veterans Affairs guarantees to repay to a lender if a borrower defaults on a home loan.
VA loans in Washington and Oregon were traditionally made for amounts up to the conforming loan limit for the specific county (or even more, in some cases). And these limits can vary by county, since they’re based on median home prices.
But now, those who qualify are no longer subject to VA loan limits. Thanks to the Blue Water Navy Vietnam Veterans Act of 2019 that was passed in June 2019, VA loan limits have been eliminated. That means that borrowers may still be able to take advantage of not having to put any money down and financing the entire home purchase price without worrying about going over any loan limits. This is particularly convenient for those looking to buy in more expensive housing markets like Seattle or Bellevue.
Before this, VA loan limits typically followed conventional loan limit amounts. It should be noted, however, that some may still be subject to loan limits, including veterans who already have more than one active VA loan on the go or those who defaulted on a previous VA loan. In this case, loan limits would apply.
In Washington, the 2021 conforming loan limits range from $548,250 in most counties, up to $776,250 in the pricier housing markets like those in Seattle.
In Oregon, the 2021 conforming limit is $548,250 in every county.
Borrowers can even go higher than these amounts in some cases, if they’re willing to make a down payment of some kind. (Most VA loan borrowers choose to go with the zero-down option.)
As you can see, there’s quite a difference between the limits shown above and the standard entitlement for VA loans, which is usually $36,000. The entitlement amount is basically the baseline level that is insured by the Department of Veterans Affairs. The amount that the borrower receives from the mortgage lender could be several times higher than this entitlement amount.
So, how much can you actually borrow when using a VA loan in Washington or Oregon?
We’ve talked about the conforming loan limits earlier, and how they relate to VA mortgage loans in particular. But we also talked about how veterans who qualify are no longer subject to VA loan limits while still being able to put no money down. Instead, only those who are already carrying a VA loan or previously defaulted on one are subject to the loan limits, equal to conforming loan limit amounts.
But for those who qualify, the only loan limit they are subject to is the one that their lenders agree to provide. Borrowers will still have to qualify for a mortgage based on their income and credit score. Lenders can use their own discretion when it comes to how much they are willing to lend different borrowers.
The amount of money you currently earn each month — and the amount you spend on your recurring debts — also play a role here. In fact, the “debt-to-income” ratio is one of the primary tools used to determine the maximum VA loan amount.
Check out our mortgage loan limit tool for conventional, FHA, and VA loans.
Sammamish Mortgage is a locally-owned, family-run mortgage company that offers several mortgage programs to homebuyers across the Pacific Northwest, including Washington State, Colorado, Idaho, and Oregon. We work diligently to help borrowers realize their dreams of buying and owning a home and have been doing so since 1992. Contact us today if you have questions about applying for a home loan or are ready to apply today.
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