If you’re applying for a second VA loan with a reduced entitlement, your entitlement amount will be based on the maximum VA loan limit for your area (in most areas, this is $766,550 in 2024), minus the entitlement you’ve already used. Because the VA will guarantee up to 25% of the loan, this means that, in most areas of the country, you’ll have a reduced entitlement up to $181,550 ($766,550 × 0.25 = $191,637.50) minus the entitlement currently tied up in a VA loan. If you buy a home that costs more than what the VA will guarantee 25% of, you’ll need to make a down payment equal to 25% of the difference.
Reduced Entitlement Example 1
To better understand this, let’s revisit our earlier example.
You purchased your current home for $250,000. On a loan of this size, the VA guarantees up to $62,500, or 25% of $250,000. So, when you go to apply for your second VA loan to buy a new house at your new duty station, your entitlement amount will be reduced by that much.
The loan limit in your new area is the standard loan limit: $766,550. This means that the maximum entitlement would be $181,550. However, we have to subtract the entitlement that’s being used for your current VA loan from that number.
$191,637.50 − $62,500 = $129,137.50
This means that your remaining entitlement is equal to $119,050. To find out the maximum loan you can take out without having to make a down payment, we need to multiply that number by four.
$129,137.50 × 4 = $516,550
You can take out a loan of up to $516,550 without having to make a down payment.
Reduced Entitlement Example 2
But what if you find a house you’d like to buy for $600,000? Because this amount exceeds your remaining entitlement, you’d need to cover 25% of the portion that isn’t guaranteed by the VA. The difference between the home’s cost and the maximum loan amount your entitlement will cover is $83,450.
If you wanted to buy the home that costs $600,000, you’d need to make a down payment of $20,862.50, or 25% of $83,450.
