VA Guaranty is a benefit available to veterans, active service members, and some surviving spouses, which guarantees a portion of their loan in case of default. VA loan entitlement is the amount the VA will guarantee on the loan, which helps veterans secure a mortgage without requiring a large down payment.
To calculate the VA Guaranty and Loan Entitlement, use the following formulas:
For full entitlement: \[ \text{Maximum Guaranty} = 25\% \times \text{Home Purchase Price} \] For partial entitlement: \[ \text{Possible Guaranty} = 25\% \times \text{County Loan Limit} \] \[ \text{Remaining Entitlement} = \text{Possible Guaranty} - \text{Used Entitlement} \] \[ \text{Maximum Loan Amount} = \text{Remaining Entitlement} \times 4 \] \[ \text{Maximum Guaranty} = 25\% \times \text{Home Purchase Price} \]
Example 1: Full Entitlement
Veteran is purchasing a home for $250,000 where the county loan limit is $548,250.
\[ \text{Maximum Guaranty} = 25\% \times 250,000 = 62,500 \]
VA will guarantee $62,500 on the veteran's $250,000 loan. NO down payment required.
Example 2: Partial Entitlement
Veteran used $62,500 of entitlement on a prior VA loan and is purchasing another home for $200,000 where the county loan limit is $548,250.
\[ \text{Possible Guaranty} = 25\% \times 548,250 = 137,062.50 \] \[ \text{Remaining Entitlement} = 137,062.50 - 62,500 = 74,562.50 \] \[ \text{Maximum Loan Amount} = 74,562.50 \times 4 = 298,250 \] \[ \text{Maximum Guaranty} = 25\% \times 200,000 = 50,000 \]
NO down payment required.
Example 3: Partial Entitlement and Loan Amount Greater than County Loan Limit
Veteran used $45,000 of entitlement on a prior loan and is purchasing a home for $700,000 where the county loan limit is $678,500.
\[ \text{Possible Guaranty} = 25\% \times 678,500 = 169,625 \] \[ \text{Remaining Entitlement} = 169,625 - 45,000 = 124,625 \] \[ \text{Maximum Loan Amount} = 124,625 \times 4 = 498,500 \] \[ \text{Maximum Guaranty} = 124,625 \] \[ \text{Maximum Guaranty \% on Proposed Loan} = \frac{124,625}{700,000} \times 100 = 17.80\% \]
Required down payment:
\[ \text{Lender required VA guaranty} = 25\% \times 700,000 = 175,000 \] \[ \text{Required Down Payment} = 175,000 - 124,625 = 50,375 \]
The borrower will have to make a down payment of $50,375 on the loan.