Entitlement

Understanding Real Estate Entitlement

Definition

Entitlement in real estate primarily encapsulates the following two meanings:

Land Development Rights: It is the legal right to develop land following the necessary governmental approvals for zoning density, utility installations, occupancy permits, use permits, and street designations.
VA Loan Entitlement: This pertains to the dollar amount of loan guarantee provided by the Department of Veterans Affairs (VA) to eligible U.S. military veterans. This guarantee enables veterans to secure mortgages for home purchases without an initial cash down payment.

Examples

Land Development Rights

A land speculator purchased 500 acres of land in a suburban area. She then worked with the town’s planning, zoning, and engineering agencies to secure entitlements, which include zoning approvals, utility installations, and occupancy permits. After securing these entitlements, she sold the land to a developer for a significant profit.

VA Loan Entitlement

William, a veteran who served in the army during the Gulf War, received an entitlement of $25,000 from the VA toward securing a mortgage. Consequently, he applied for a $100,000 home loan. Given his VA loan entitlement, the bank lent him the entire amount, allowing William to purchase his home with no down payment.

Frequently Asked Questions (FAQs)

Q1: What are the steps involved in securing entitlements for land development?

A1: Obtaining entitlements generally involves steps such as:

Conducting preliminary site evaluations.
Working with local planning and zoning authorities.
Submitting detailed plans and proposals.
Receiving necessary utility and environmental permits.
Gaining final approval from relevant municipal bodies.

Q2: How does a VA loan entitlement benefit veterans?

A2: A VA loan entitlement allows eligible veterans to secure home loans with favorable terms, such as no required down payment, competitive interest rates, and no private mortgage insurance (PMI) requirement. The VA guarantees a portion of the loan, reducing the risk for lenders.

Q3: Is it possible for entitlements to expire or be revoked?

A3: Yes, entitlements can have expiration dates set by local authorities. Additionally, if certain conditions are not met or violations occur, entitlements can be revoked.

Q4: Can veterans use their VA loan entitlement more than once?

A4: Yes, veterans can use their VA loan entitlement multiple times, although the total guarantee may be affected by the remaining entitlement from previous loans. They may need to restore entitlement by paying off previous VA loans or following specific VA procedures for restoration.

Q5: What’s the difference between zoning and entitlements?

A5: Zoning refers to the land use designations established by municipal authorities defining what kind of structures and activities are allowed on a parcel of land, whereas entitlements are the specific approvals and permissions granted to develop and use the land according to those designations.

Zoning: Regulations and designations that determine how land within certain areas can be used.
Occupancy Permits: Official approvals required for a property to be legally occupied for its intended use.
Use Permits: Permissions granted for specific activities or uses not typically allowed under standard zoning designations.
VA Loan Guarantee: A federal guarantee provided by the VA ensuring that a portion of a veteran’s home loan will be covered in case of default.
Rurban Area: A geographic area exhibiting traits of both rural and urban environments, commonly found on the outskirts of urban regions.
Down Payment: The initial upfront portion of the total amount due on a purchase, often required by lenders during real estate transactions.

Online Resources

References

U.S. Department of Veterans Affairs. “VA Home Loans.” Retrieved from va.gov
National Association of Home Builders. “Land Development & Zoning.” Retrieved from nahb.org
Smith, Jonathan D., “The Zoning and Real Estate Development Handbook.” ISBN: 123-4567890123.

Suggested Books for Further Studies

“Real Estate Development Matrix” by Daniel B Kohlhepp
“Professional Real Estate Development: The ULI Guide to the Business” by Richard B. Peiser
“The Law of Zoning and Planning” by Arden H. Rathkopf
“Real Estate Entitlements and Due Diligence: Navigating the Maze” by Barry D. Farber

Real Estate Basics: Entitlement Fundamentals Quiz

### What is a primary benefit of a VA loan entitlement? - [x] No need for a down payment - [ ] Guaranteed lender profits - [ ] Mandatory real estate agent services - [ ] Reduced mortgage interest with any lender > **Explanation:** A key benefit of a VA loan entitlement for veterans is the ability to secure a home loan without needing to make a down payment. ### Entitlement in land development includes obtaining approval for which of the following? - [x] Zoning density - [ ] Real estate listings - [ ] Neighborhood watch programs - [ ] Homeowner association rules > **Explanation:** Entitlement for land development involves approvals such as zoning density, permitting certain uses, and overall infrastructure signage for utility installations. ### True or False: Entitlements for land development can expire or be revoked. - [x] True - [ ] False > **Explanation:** Entitlements for land development are subject to expiration dates and conditions imposed by local authorities, and can be revoked if compliance requirements are not met. ### What does the term 'rurban area' refer to? - [ ] Strictly urban environments - [x] Mix of rural and urban characteristics - [ ] Protected nature reserves - [ ] Suburban-only areas > **Explanation:** A 'rurban area' refers to a geographic zone that exhibits a combination of rural and urban features often found in the peripheries of cities. ### What entity provides the guarantee for VA loans? - [ ] Federal Reserve - [x] Department of Veterans Affairs - [ ] IRS - [ ] U.S. Treasury > **Explanation:** The VA loan guarantee is provided by the Department of Veterans Affairs to help veterans obtain favorable mortgage terms. ### How are 'occupancy permits' related to entitlements? - [ ] They are unrelated - [x] They are approvals required as part of entitlements - [ ] They only apply to commercial properties - [ ] They replace the need for zoning permits > **Explanation:** Occupancy permits fall under the broader scope of entitlements and are necessary approvals allowing legal occupation of a developed property. ### Why might a veteran need to restore their VA loan entitlement? - [x] To use it again for a different property - [ ] For tax reasons - [ ] To qualify for a business loan - [ ] To avoid interest rate hikes > **Explanation:** Veterans might need to restore their VA loan entitlement to avail of it for another property, typically if it has previously been fully used. ### When securing entitlements for land development, which professionals might a developer work with? - [x] Planning, zoning, and engineering personnel - [ ] Stock brokers and investment bankers - [ ] Teachers and school administrators - [ ] Hospital staff and healthcare providers > **Explanation:** The process of obtaining entitlements often involves collaborating with planning, zoning, and engineering professionals through municipal authorities. ### In the context of VA loans, what does the loan guarantee do for lenders? - [x] Reduces the risk of loss - [ ] Increases loan profitability by default - [ ] Allows unlimited loans without evaluation - [ ] Guarantees refinancing options > **Explanation:** The VA's loan guarantee reduces the risk for lenders by covering a portion of the loan in case of borrower default, thereby encouraging lenders to offer better terms. ### What is the implication of securing land development entitlements before selling land? - [ ] It lowers resale value - [ ] It leads to immediate construction contracts - [x] It can significantly increase the land’s market value - [ ] It abolishes the need for future permits > **Explanation:** By securing entitlements before selling, the land gains significant added value as the developers purchasing it can proceed with fewer regulatory delays and costs.