The original VA loan had a BASIC entitlement, which increased periodically, that settled out at $36,000 in the early 2000s. This was good for one VA loan up to $144k (4 x entitlement).
Congress added a SECOND tier, or BONUS ENTITLEMENT, when they expanded VA loan legislatively in 2004. This second-tier entitlement was directly linked to the conforming loan limit set by FHFA for conventional loans, which is $832,750 in 2026. In addition to increasing the limit, this legislation also allowed multiple uses of the VA loan, limited only by the entitlement used.

The Main reason? It's a legacy government system! It has not been updated to reflect second tier entitlement, particularly since it changes every year. That is why it is essential that you consult a trusted mortgage advisor to calculate the full amount of eligibility remaining.

While you would still use your bonus entitlement for a purchase over $144k, the calculation does not apply if you have full eligibility. The Blue Water Navy Act of 2020 removed any limits for an unencumbered COE purchase. The max loan amount is only limited by what a lender is willing to loan.

Encumbered means there is a charge against your eligibility, and it can be encumbered by several things.
- If you have an outstanding VA loan that is an encumbrance.
- If you had a foreclosure and are no longer on the property and the VA had to pay out on it, then you would have that encumbrance still on your COE.
- The same thing applies for deed in lieu. Your COE would be encumbered by the amount the VA paid out.

Here is an interesting fact, though. The VA will charge the full entitlement of the loan if they have to pay out in a foreclosure or deed in lieu. However, that may not be the amount that they actually have to pay out. For example, say a veteran had a loan with a $36,000 entitlement charge and the home got foreclosed on. If VA had to pay out $15,000 to a lender when the loan went into foreclosure to cover the difference between what the house sold for and what the loan amount was, they are still going to charge the full $36,000 entitlement. If at a later date the veteran wants to cure the encumbrance, it won't cost $36k; it would cost $15k.