We get a lot of Veterans who are interested in buying a home, but don’t know if they are eligible for a VA loan or even how to read their Certificate of Eligibility (COE).
How to read the Certificate of Eligibility
There are 5 items that affect your eligibility, which are:
- Entitlement Code
- Funding Fee
- Prior VA Loans Charged to Entitlement
- Entitlement Amount
- VA Entitlement Codes
In order to be eligible for a VA loan, the Veteran must fulfill the VA’s service requirements. The entitlement code affirms your military service. The entitlement code on the COE matches to a service period on the chart below.
|Code||Service Time Period|
|01||World War II|
|06||Unremarried Surviving Spouse|
|07||Spouse of POW/MIA|
|08||Post World War II|
In short, to be eligible, the Vet must complete 91 days of active duty, 4 years in the military or 6 years in the reserves. On our example COE, you see Johnny’s entitlement code 10 – Gulf War because our example borrower has fulfilled his active duty requirement.
- VA Funding Fee
Most Veterans pay a one-time funding fee on the day of settlement to the Department of Veterans Affairs. The money collected from the funding fees is used by VA to pay for loans that default and to keep VA healthy for future Veteran home buyers.
If the funding fee statues shows “Exempt” then the Veteran would not have to pay the funding fee.
- Prior VA Loans Charged to Entitlement
Look at section 3 on the COE if you plan to purchase a second home using your VA eligibility in addition to the home you have a VA loan on. This section tracks your entitlement charged. Entitlement charged is the amount of entitlement used on existing VA loans.
Once you know how much VA entitlement you are currently using, then you can quickly figure out how much entitlement you have remaining for your next VA loan.
Johnny took out a $300,000 VA loan on July 14, 2016. His loan is still active, and he is using $75,000 of his VA entitlement.
- VA Entitlement Amount
VA loan allow you to put down $0; allowing the Veteran to do up to 100% financing.
Before we can calculate our Johnny’s entitlement, let me explain what the VA means by “This Veterans’ basic entitlement is $0*. Total entitlement charged to previous VA loans is $36,000*.”
Johnny’s entitlement is not $0* and he didn’t charge $36,000* of his entitlement to previous VA loans. Notice the asterisks next to the $0* and the $36,000*? That’s the VA’s way of hinting that Johnny might have more entitlement available.
How to Calculate Your Entitlement When You Already Have a VA Loan
To figure out how much entitlement is available, follow the VA’s instructions that I highlighted on the COE. “…the entitlement amount is 25% of the VA loan limit for the county where the property is located.”
The national VA loan limit for 2019 is $484,350. So multiple $484,350 by 25% to get your entitlement amount of $121,087.
|$484,350 (VA loan limit)|
|= $121,087 (Entitlement available)|
Johnny already used $75,000 of his $121,087 entitlement. To figure out how much he has left over for his next home purchase, subtract $75,000 from $121,087 to get $46,087.
|$121,087 (Entitlement available)|
|= $46,087 (Entitlement remaining)|
Then you take the remaining entitlement $46,087 x 4 to get $184,348.
|$46,087 (Entitlement remaining)|
|= $184,348 Max loan amount for 100% financing on a VA loan, while keeping the current|
- Condition on a COE
Section 5 spells out particular eligibility requirement for the Veteran.
One of Johnny’s conditions is “subsequent use funding fee.” This condition tells the lender that Johnny must pay a higher funding fee because this is his second VA loan. Whenever a Veteran uses their VA loan eligibility for a second time or more, they will pay a higher funding fee to VA. But remember, if the Veteran is exempted from paying the funding fee, they will never have to pay one.
How do I get a copy of my VA COE?
Most lenders have access to the VA Portal that allows us to go in and pull it within seconds. If the Veteran is not in the portal (this happens with older Veterans because VA is still getting gall their records put in the portal) we can request it by providing a copy of the Veterans DD214 and having them sign a “request for certificate of eligibility” form.
To find out more information give Team Rebecca a call at 717-609-4044 or go to our website: www.RebeccaFoote.com