So you want to buy another home with the VA Loan – but not sure how to use your entitlement again? Don’t worry there are solutions!
Hi, Vetted VA, this is Adrian Placinta with True Path Loans, and I’m here for another edition of VA math. This time we’re going to do secondary use entitlement. I have an example. I’m going to share the screen and we’re going to walk through this and how to do a secondary use entitlement.
Secondary use entitlement means you can have more than one VA loan at a time.
If you have remaining entitlement left over, you can go get another VA loan. This is beneficial for anyone who wants to keep those low interest rates on a VA loan, and you get that two and a quarter or get a really low interest rate. If you could go and buy another one and still get that great rate and come in with a low down payment. It’s a huge benefit for Veterans. Secondary use entitlement. Doesn’t always work out for high balance areas. You know, it depends on how much Entitlement you have.
There’s some math we got to do. I broke this down into a few different things here. As you can see, A is the current entitlement used. There’s a calculation to get to the current entitlement used, you would see the current loan size and multiply it by 0.25.
A=Current Entitlement Used
- Current VA Loan Amount X 0.25
It does say on the Certificate of Eligibility what the current entitlement used is, but that may be off the original loan size. And if they’ve had it for a while or pay down that loan, you always want to double check current entitlement used. Current Loan Balance. Multiply it by 0.25. So it’s a quarter of the loan balance.
B, this is Fannie Mae County loan limit for secondary use property. Where are you going to get that property? You look for that county loan, so when shopping around, it’s important to know what counties they’re looking at so you don’t qualify them for $822,000 loan size when they’re actually buying a 548 or vice versa. I’m in Orange County, California, so we’re, you know, high cost area 822,375 for Fannie, 548,250 almost everywhere else. You know, they do have in between and it changes every single November. At least it’s announced every November and then it goes into effect in January.
B=Fannie Mae County Loan Limit for Secondary Use Property
- 822,375 in Orange County, CA
- 548,250 Most everywhere else
C, Max 100% financing limit. We’re going to calculate from A and B we’re going to get the C.
C=Max 100% Financing Limit
D, purchase price for the secondary use property. Obviously, you know, you could ask the client or qualifying loan to a certain purchase price.
D=Purchase Price for Secondary Use Property
Down payment needed. We’re going to calculate this number based off of everything else above. This is how the math works and I had a note over here. If you go through this math and this number ends up being negative, it’s because your purchase price is lower than your 100% financing limit and you’re fine. If that’s negative, just ignore it. There’s no down payment needed if you follow this math. So on this math it says B Times 0.25 minus A times 4 equals C, that’s B is the county loan limit. So county loan limit multiply it by 0.25.
You’re going to subtract out what was used on current entitlement and then you’re going to multiply what’s left over by four and that is going to be 100% financing limits.
((B x 0.25) – A) x 4 = C
(D – C) x 0.25 = E
So here’s your example: Guy owes 594 on his current loan amount. We’re going to multiply that by 0.25. He has current entitlement used of 148,500. So this is what A is-current loan size times 0.25. That’s A.
594,000 Current Loan x 0.25 = 148,500 Current Entitlement Used
A = 148, 500
- We’re assuming the guy’s buying in Orange County, multiply it by 0.25 and then subtract out this current entitlement used.
(822,375 County loan limit x 0.25) – 148,500
And then what’s left over, you’re going to multiply it by four. So if we were to do this math, 822 times 0.25, it’s a little over $200,000. You subtract out the 148, you’re left with little over 50,000.
Multiply it by four. That’s how you’re at 228. And down here you can see B was the county loan limit. C was our answer. And the last equation down here, D minus C times 0.25 equals E. D is the purchase price for that new property.
((822,375 County loan limit x 0.25) – 148,500) x 4 = 228,375
B = 822,375
C= 228,375
Subtracting out the 100% limit. What we’re trying to do here is figure out what’s the difference between what the VA allows us to go up to 100% on and what they’re actually buying. Whatever that difference is, the client needs to bring in 25% of that amount, so they don’t need to do a 25% down payment on the entire amount, just the difference between the purchase price and 100% financing amount. So in this case, let’s say the guy’s buying million dollar property. He could finance up to 228 and 375 for 100%. So you subtract that out and then what’s left over?
(1,000,000 – 228,375)
You multiply it by 0.25 and that tells you how much down payment you need. So you think about it, all right, you got about 1,000,000, the purchase price about 200,000 on the 100% financing. The difference is about 800,000. They’ve got to bring in 25% of 800,000 roughly. That’s where you got 192 now. I mean, as far as like down payment goes on 1,000,000 property, you could be buying this with 192. With closing costs, you’re still at 20% down.
(1,000,000 – 228,375) x 0.25 = 192,906.25
D = 1,000,000
E=192,906.25 Down Payment Needed
But now you have an assumable loan. You have a great interest rate. You have the option to do an IRRRL later with no appraisal, no income docs. And yeah, it’s just a much better loan. So this is a good option for a lot of people, even though they may not have a lot of entitlement left coming with the down payment still makes a lot of sense versus going conventional. All right. That’s it for today. Thank you.
ALL THE MATH USED BELOW:
A=Current Entitlement Used
- Current VA Loan Amount X 0.25
B=Fannie Mae County Loan Limit for Secondary Use Property
- 822,375 in Orange County, CA
- 548,250 Most everywhere else
C=Max 100% Financing Limit
D=Purchase Price for Secondary Use Property
E=Down Payment Needed
If E is a negative number, there’s no down payment needed other than closing costs
The Math:
((B x 0.25) -A) x 4 = C
(D – C) x 0.25 = E
Example: 594,000 Current Loan x 0.25 = 148,500 Current Entitlement Used
A = 148, 500
((822,375 County loan limit x 0.25) – 148,500) x 4 = 228,375
B = 822,375
C= 228,375
(1,000,000 – 228,375) x 0.25 = 192,906.25
D = 1,000,000
E=192,906.25 Down Payment Needed
