VA Loans: Bonus Entitlement

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blog-author-clayjeffreys3

Bonus entitlement is extra entitlement that a VA loan applicant can use to buy a home under some specific scenarios. For example, let’s say someone plans to buy a new home as a primary residence prior to selling their current home secured by a VA loan. Another example would be the entitlement the borrower can use after they may have cost the VA money from a short sale or foreclosure on a previous VA loan.

So how does it work? Well, I can’t give you complete details. There is a down payment requirement for sure, but the amount of the down payment is actually determined by the loan amount and how much of their previous entitlement was used either through a loss on a short sale or foreclosure OR how much of the entitlement was used on the purchase of the previous home.

The VA provides a worksheet to use when qualifying buyers, and it varies. For example, earlier this year I worked with someone who had to use bonus entitlement due to a short sale. They also needed 100% financing. Their max purchase price wasn’t the allowable $417,000 using the normal entitlement, but was around $230,000 using their bonus entitlement. Anything above that price point would require money to be contributed as a down payment.

Another client I had this year purchase a home using a VA loan at $170,000. Based on the amount he lost the VA on a previous short sale, 100% financing wasn’t even an option at any loan amount. After using the worksheet, he needed to make about a 6% down payment on that purchase price of $170,000. Even with the short sale from several years ago, he could still buy a new home with a VA loan. While the down payment was higher (about 6%) versus an FHA loan (only 3.5%), the VA loan was a better deal for this buyer. He qualified for the VA loan without needing the funding fee, and there is never mortgage insurance on a VA loan. He would have to make mortgage insurance payments on the FHA loan.

Assuming our VA loan applicant has a qualifying credit score and meets the income requirements, bonus entitlement can be used so long as they have enough to meet the down payment requirements.

While this post doesn’t give complete specifics about how to proceed, the purpose was to let veterans and VA loan applicants know it exists and can be used.

Wanting to buy a home but denied because of entitlement? Is the home in the state of Georgia? If so, contact me today. I’ve closed clients with VA loans that were denied at other lenders by using their bonus entitlement. Make sure all of your options are exhausted before giving up.

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