Understanding Second Tier Entitlement for VA Loans

The VA home loan program offers a powerful benefit for eligible veterans, active duty servicemembers, and surviving spouses. VA loans require no down payment and have flexible credit guidelines. However, loan limits and entitlement rules can create confusion around how much buyers can borrow. We’ll break down second tier entitlement for VA loans and what it means for your purchasing power.

What is VA Loan Entitlement?

Entitlement refers to the amount the Department of Veterans Affairs guarantees on a VA-backed loan in the event the borrower defaults. The VA provides two tiers of entitlement

• Basic entitlement – $36,000
• Second tier entitlement – Up to $144,000

Add these together and most borrowers have total entitlement of $180000. Entitlement works as a 25% guarantee on your loan amount. With full entitlement the VA will back 25% of loans up to $720,000 without requiring a down payment.

For example, on a $200,000 loan the entitlement used would be $50,000 (25% of $200,000). This leaves $130,000 in remaining entitlement for a future purchase.

Why Second Tier Entitlement Matters

In the past, VA loans were capped at $144,000 for borrowers using just their basic entitlement The second tier entitlement is what allows loans above $144,000 up to the county limit

Second tier entitlement makes it possible to:

• Buy a more expensive home without a down payment
• Have multiple VA loans open at the same time
• Restore your entitlement after foreclosure

Understanding second tier rules is key to maximizing your VA mortgage benefits over a lifetime.

How Second Tier Entitlement Works

Second tier entitlement isn’t automatic. To access loans above $144,000, you must have:

• Never used your VA loan before
• Paid off a previous VA loan in full
• Fully restored entitlement after foreclosure

As long as one of those is true, your Certificate of Eligibility (COE) will reflect full entitlement of $180,000. You can borrow up to $720,000 before needing a down payment.

If you have an existing VA loan, you likely have used some entitlement and would need to apply second tier rules. Here are a few examples:

Current Loan: $200,000

• Basic entitlement used: $50,000
• Second tier entitlement available: $130,000

You could purchase again for up to $520,000 before needing a down payment.

Current Loan: $300,000

• Basic entitlement used: $36,000
• Second tier entitlement used: $64,000
• Second tier remaining: $80,000

You could purchase again for up to $320,000 before needing a down payment.

Current Loan: $500,000

• Basic entitlement used: $36,000
• Second tier entitlement used: $114,000
• Second tier remaining: $30,000

You could purchase again for up to $120,000 before needing a down payment.

When You Might Use Second Tier Entitlement

There are a few scenarios where second tier entitlement comes into play:

Keeping your home and buying again: If you want to move but keep your current home as a rental, you can buy a new primary residence using second tier entitlement.

After VA loan foreclosure: Second tier can help restore your entitlement so you can buy again after 2 years.

Active duty PCS move: Second tier allows you to buy at your new duty station while keeping the old home.

VA loan assumption: When a VA loan is assumed, the entitlement stays with the property. Second tier allows the buyer to use their entitlement.

Impact on Buying and Selling with VA Loans

Understanding second tier entitlement enables smart planning and coordination when buying, selling, and moving with VA loans.

For example, if you know you have $80,000 in second tier entitlement remaining, you can determine the maximum purchase price for a new home that won’t require a down payment.

Or if you expect to have full entitlement restored after an upcoming sale, you can shop for your next home knowing you likely won’t face loan limits.

Carefully tracking entitlement use, payoffs, assumptions, and defaults is key to leveraging your full VA loan benefits over a lifetime.

Alternatives for Maximizing Your Purchase Power

Second tier entitlement isn’t the only route to buying more home with a VA loan. Here are two other options if you have limited entitlement remaining:

Making a down payment – You can pay toward the 25% guarantee on any amount borrowed above your available entitlement. This preserves entitlement for future use.

Using non-occupant co-borrower income – Adding a non-occupant co-borrower like a family member can supplement your income and DTI to qualify for a larger loan. They assume responsibility for the debt but don’t live in the home.

Who Can Use Second Tier VA Entitlement?

The following buyers are eligible for the full $180,000 in VA loan entitlement:

• First time VA loan borrowers
• Veterans who have paid off a previous VA loan in full
• Veterans who have restored entitlement after foreclosure by repaying the VA

Veterans with an existing VA loan have used a portion of their total entitlement and would need to apply second tier rules carefully when buying again.

Surviving spouses also have access to second tier entitlement, but special rules apply. Speak to a lender about your specific case.

Second Tier Entitlement Provides Purchase Power

Thanks to second tier entitlement, today’s $180,000 VA loan limit enables more Veterans to buy larger homes with no down payment required. You’ve earned this powerful benefit through your service. Understanding entitlement rules is key to making the most of your VA buying and refinancing options over your lifetime.