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VA Loan Entitlement and Eligibility Framework

The VA home loan program provides eligible veterans and service members with government-guaranteed mortgage financing featuring no down payment, no PMI, and competitive rates. Eligibility is determined by military service and documented through a Certificate of Eligibility. The entitlement system determines the maximum guaranty amount, and a one-time funding fee (waived for disabled veterans) helps fund the program. VA underwriting includes unique residual income requirements in addition to standard DTI analysis.

Key Takeaways

  • VA loans offer zero down payment, no PMI, and competitive rates for eligible veterans, active-duty members, certain reservists, and eligible surviving spouses.
  • The Certificate of Eligibility (COE) documents the veteran's eligibility and available entitlement amount.
  • Full entitlement allows borrowing up to the county loan limit with no down payment; partial entitlement may require a down payment if remaining entitlement is insufficient.
  • The VA funding fee ranges from 1.25% to 3.3% depending on down payment and prior VA loan use, but is fully waived for veterans with VA disability compensation.
  • VA underwriting requires residual income (net income remaining after expenses) in addition to standard DTI evaluation.
  • VA appraisals include Minimum Property Requirements focusing on safety, structural soundness, and sanitation.
  • The property must be owner-occupied as a primary residence; investment properties and vacation homes are not eligible.
  • Veterans can use the VA benefit multiple times — entitlement can be restored after a prior VA loan is paid off.

How It Works

Who Is Eligible

VA loan eligibility generally requires one of the following: active-duty service of at least 90 consecutive days during wartime or 181 days during peacetime; 6 years of service in the Selected Reserve or National Guard; or surviving spouse status (un-remarried spouse of a veteran who died in service or from a service-connected disability, or a spouse of a service member missing in action or a prisoner of war). The specific service requirements vary based on when the veteran served .

Certificate of Eligibility (COE)

The Certificate of Eligibility is the document that confirms a veteran’s eligibility for VA loan benefits and shows the amount of entitlement available. Lenders can obtain COEs electronically through VA’s Web LGY system in most cases, or veterans can apply by mail using VA Form 26-1880. The COE shows the veteran’s full entitlement amount, any entitlement currently in use (tied to an existing VA loan), and the remaining available entitlement .

Full vs. Partial Entitlement

Every eligible veteran has a basic entitlement of $36,000 and an additional (bonus) entitlement amount that varies by county loan limit. The total entitlement determines the maximum loan amount the VA will guarantee without requiring a down payment. When a veteran has full entitlement (no existing VA loan), they can borrow up to the county loan limit (which now mirrors conforming loan limits) with no down payment requirement .

When a veteran has partial entitlement — because they have an existing VA loan that has not been paid off or the entitlement has not been restored — the remaining entitlement determines the no-down-payment maximum. If the remaining entitlement is insufficient to cover 25% of the desired loan amount, the veteran must make a down payment to cover the difference. This situation commonly arises when a veteran purchases a second home while retaining the first home with a VA loan .

VA Funding Fee

The VA funding fee is a one-time fee charged on VA loans that helps offset the cost of the loan program to taxpayers. The fee varies based on the type of transaction (purchase vs. refinance), down payment amount, and whether the veteran has previously used the VA loan benefit. For a first-time-use purchase with no down payment, the funding fee is 2.15%. With a 5% down payment, it drops to 1.5%. With 10% or more down, it drops to 1.25%. Subsequent use (second or later VA loan) with no down payment carries a 3.3% funding fee .

Important exemptions: veterans receiving VA disability compensation, surviving spouses receiving Dependency and Indemnity Compensation (DIC), and active-duty Purple Heart recipients are exempt from the funding fee entirely. This exemption can save thousands of dollars and is a significant benefit for eligible veterans .

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Key Factors

Factors relevant to VA Loan Entitlement and Eligibility Framework
Factor Description Typical Range
Entitlement Status
Funding Fee Amount
Residual Income
Property Condition (MPRs)

Examples

Scenario: First-time VA loan user purchasing with zero down payment
Outcome: Monthly P&I: $2,516. No PMI payment (VA loans never require PMI). The veteran's PITI of $3,016 (including taxes and insurance) is evaluated against both DTI limits and residual income requirements. The financing of the funding fee increases the loan balance but avoids a large upfront cash outlay.

Scenario: Disabled veteran purchasing with funding fee exemption
Outcome: The veteran saves $7,525 (2.15% of $350,000) by being exempt from the funding fee. No PMI applies. The loan amount is exactly the purchase price with no added fees. This makes the VA loan with disability exemption one of the lowest-cost mortgage options available.

Scenario: Veteran using second-tier entitlement for a second VA loan
Outcome: The veteran's full entitlement minus the entitlement tied to the first loan determines the maximum no-down-payment amount for the second purchase. If remaining entitlement covers 25% of $350,000 ($87,500), the veteran can purchase with no down payment. If entitlement is short, a down payment covers the gap. The second-use funding fee of 3.3% ($11,550) applies.

Common Mistakes to Avoid

  • Not checking for VA disability funding fee exemption before closing
  • Assuming the VA loan benefit can only be used once
  • Ignoring the residual income requirement and focusing only on DTI
  • Not accounting for the funding fee when comparing VA loans to conventional options
  • Purchasing a property that fails VA Minimum Property Requirements without a plan for repairs

Documents You May Need

  • Certificate of Eligibility (COE) showing available entitlement
  • DD-214 (Certificate of Release or Discharge from Active Duty) for veterans
  • Statement of Service for active-duty members (signed by commanding officer or personnel office)
  • VA disability compensation award letter (if claiming funding fee exemption)
  • Standard income documentation (pay stubs, W-2s, tax returns, LES for active duty)
  • Bank statements for asset verification
  • VA appraisal report from a VA-assigned appraiser
  • Pest inspection (termite report) — required in many states for VA loans

Frequently Asked Questions

Who is eligible for a VA loan?
Eligible borrowers include veterans with qualifying service (typically 90+ days wartime or 181+ days peacetime), active-duty service members, certain Reserve and National Guard members with 6+ years of service, and un-remarried surviving spouses of veterans who died in service or from service-connected disability.
Is there really no down payment required?
Correct, VA loans offer 100% financing with no down payment required for veterans with full entitlement. However, making a down payment reduces the funding fee and the loan balance. Veterans with partial entitlement may need a down payment if their remaining entitlement is insufficient.
What is the VA funding fee?
The funding fee is a one-time charge (1.25-3.3% of the loan amount) that funds the VA loan program. It can be paid at closing or financed into the loan. Veterans with VA disability compensation are exempt from the fee entirely.
Can I use my VA loan benefit more than once?
Yes. Entitlement can be restored after a prior VA loan is paid off and the property is sold (full restoration) or through second-tier entitlement if you retain the first property. There is no limit on the number of times you can use the benefit.
What is residual income and why does it matter?
Residual income is the amount of net income remaining after all major monthly expenses are deducted. The VA sets minimum residual income amounts by geographic region and family size. A veteran who passes DTI limits but fails the residual income test may be denied.
Can I buy an investment property with a VA loan?
No. VA loans require owner occupancy. However, you can purchase a multi-unit property (up to four units), live in one unit, and rent the others. The rental income may be used for qualifying purposes under certain conditions.
What happens if the VA appraisal comes in low?
If the VA appraisal is below the purchase price, the veteran can negotiate a lower price, pay the difference in cash, request a Reconsideration of Value (ROV) with supporting comparable sales, or walk away from the transaction. VA loans include a mandatory escape clause (the VA Amendment to Contract) that allows the veteran to cancel without penalty if the appraisal is low.
Do surviving spouses qualify for VA loans?
Un-remarried surviving spouses of veterans who died in service or from a service-connected disability are eligible for VA loan benefits, including the funding fee exemption. Surviving spouses who remarry after age 57 may also retain eligibility under certain conditions.
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