Second-Tier Entitlement (STE) in VA loans is a program that allows eligible military members to purchase houses after a foreclosure or purchase two homes simultaneously.
How Does Second-Tier Entitlement in VA Loans Work?
Let’s look at an example of how it works. You buy your first home with a VA loan, and five years pass, and you get transferred to another state; foreclosure takes place shortly thereafter, and you go back to square one in the housing search. Due to the transfer, you don’t qualify for the maximum entitlement of $36,000 because it has been used up during your first purchase. You can use what’s known as “Second-Tier Entitlement” (STE) which equals two times your original entitlement amount (2X). In this example, you’d have $72,000 to put toward another house.
In order to qualify for Second-Tier Entitlement, the transfer must be PCS or a PCA due to a permanent change in station or a permanent change of duty assignment because of the service member’s military orders, and there must not be any ownership interest (equitable or legal) in the property.
It’s important to note that entitlement is for service members, not spouses. If you are married, only one of you can use STE; it cannot be split between the two of you. Also, if both of you are on PCS orders and both qualify for STE (which happens), you can only use your entitlement. You will also have to go back into the market within one year from the date of purchase or foreclosure, and that portion is lost forever. You cannot carry it over to a new house purchase if the current one closes before one year runs out.
Just like with normal VA loan entitlements, it can take up to three months before the money is available for your use after closing on a house.
How Is VA Loan Additional Entitlement Calculated?
VA loan entitlement used in VA loans is calculated as follows: VA regional office plus $1,000. Multiply the VA funding fee by 240 and add it to the first figure. This is your VA loan additional entitlement and can be no higher than $36,000 for a single-wide purchase or $72,000 for a VA-approved multi-section purchase. VA also cannot require a down payment when VA loan entitlement is used, so it makes VA loans more affordable. VA loan entitlement used in VA loans is calculated using a VA Funding Fee Calculator.
Every eligible military member automatically has $36,000 in VA entitlement without having to pay an additional fee. However, you must apply for this entitlement through your VA lender prior to closing on the VA loan. An estimated VA funding fee of 4% must be included in the loan, which means your VA loan additional entitlement will be reduced by $1,440 for each $100,000 borrowed of VA purchase money. VA funding fee calculator is used to estimate VA funding fee of 4%.
What Does Entitlement Charge Mean on a VA Loan?
VA funding fee is the only charge on a VA loan. It is calculated as 4% of the loan amount and can be paid in cash or rolled into a VA loan. Eligible veterans may finance 100 percent of this fee to obtain a zero-down payment home loan or refinance their existing mortgage to obtain a new, lower rate with no additional cost.
The VA funding fee is a charge imposed by the Department of Veteran Affairs to partially offset the cost associated with insuring a home loan. The funding fee can be paid in cash at closing or rolled into the monthly payment for a higher loan balance. For most veterans, this charge will be about 1% of the total value of their house. The fee is split into two sections, the first being 1.25% for loan guarantees and the second being .5% charged to cover closing costs that are not paid by the seller upfront.
In conclusion, VA loan entitlement used in VA loans is calculated using the VA funding fee calculator. For most veterans, this charge will be about 1% of the total value of their house. The funding fee can only be financed when a veteran has used their entitlement to purchase a home through a VA-backed mortgage.