VA Loan Limits When Applying for a VA Home Mortgage
For almost anyone who has ever served in the United States Military, either as active-duty service members, National Guard members, or Reserves, the VA Home Loan program is one of the most powerful entitlements they have when it comes to buying a home.
The benefits of this program are practical and put in place with service members in mind, and 100 percent of the loan amount is fully insured by the VA. In addition, there are no mortgage insurance requirements and borrowers are not required to provide a down payment of any amount. Even the VA funding fee can be rolled into the loan. If that isn’t enough, how about this: there are now essentially no limits on the dollar amount you can finance through the VA Mortgage program. Want to know how to apply for a VA Loan, regardless of the price range you’re looking in, keep reading.
Are there really no loan limits for a VA Home Loan?
A loan limit is the amount of money a veteran or service member, once qualified for the program, can finance without supplying a down payment. And, yes, there are no limits to the amount you can borrow through the VA Loan program.
However, there is a catch. Though there are no limits on how much you can borrow, there are limits on how much the VA will assume liability for. This can have a direct impact on how much a lender is willing to finance. Because home prices vary throughout the country (even throughout one metropolitan area) the cap on VA liability amounts differ depending on what county you are purchasing a home in.
Looking at the VA’s guarantee caps
Prior to 2015, the VA Mortgage program insured home purchases of over $1 million in some areas. In late 2014, however, that changed when Congress matched up the maximum amount the VA could guarantee in their home loan program with the insurable limits enacted by Freddie Mac and Fannie Mae, the two government sponsored enterprises (GSEs). This set loan limits reflecting the median home prices in each metropolitan statistical area (MSA) or county.
The standard amount backed by the VA is 25 percent of whatever the loan limit is for each specific area. The highest loan limit in the country is capped at $721,050, which would mean $180,262 would be insured by the government. On average though, the limit on most VA Loans is $417,000, which would mean the government will back $104,250.
How VA Loan Limits Work
In most instances you can finance 100 percent of any purchase as long as it is equal to or less than four times the amount guaranteed by the Department of Veterans Affairs in that area. So, if a service member were to buy a home for $300,000 in a location where the VA guarantee limit is $104,250, they would qualify to have 25 percent of the loan backed by the government ($75,000) because it doesn’t exceed the guarantee limit (which would be $417,000). In this scenario, the borrower would qualify for a $0 down payment.
Loan limits on rental properties
While you cannot receive a VA Home Loan for the sole purpose of renting out the property you are buying, you may be able to purchase a property with multiple units. If this case, you can rent out any extra units as long as you are living in one of them. With multi-unit mortgages, VA Loan Limits are often higher. On average, the limit for duplexes is $533,850, a tri-plex limit is $645,300, and the limit on the average four-plex is $801,950.
What is this term “VA Jumbo Mortgages” you keep hearing about?
You may see offers for “VA Jumbo Loans.” Remember, if something seems too good to be true, there’s probably a catch. Here’s how this one works (basically, a “VA Jumbo Mortgage” will require a down payment):
If a home price is more than four times the guarantee limit, a lender can make one of two choices. They could decide to go ahead with the financing, knowing less than 25 percent of the home’s value is insured. Or, they could require the borrower pay the difference between 25 percent of your home’s price and 25 percent of the loan limit for that area.
As an example, if you choose to buy a home in an area where the VA loan limit is $417,000 but your home is $550,000, the amount the VA would insure on that loan is $104,250 (25 percent of its limit of $417,000). This is only 19 percent of the home’s value. So, in this case, the lender could make you pay the difference in guaranteed money up front. Since 25 percent of $550,000 is $137,500, the equation would go like this:
$137,500 – $104,250 = $33,250
So, in this scenario, the borrower would be required to put $33,250 down up front in order for the lender to approve the loan. While you would not get the benefit of paying no money down up front, you would still only have to pay a 6 percent down payment to get the home of your dreams.
Analyzing the VA Home Loan’s loan limits
The VA Home Loan provides flexibility. In order to skip on the down payment, you’ll have to stay in the GSE limits. If your dream home is beyond those limits, it is not impossible to find a lender that will agree to finance the entire purchase price with no down payment, but you will really have to dig. You may still use your VA Mortgage program to purchase a home outside of the GSE limits if you are willing to supply a down payment that makes up the difference in the guaranteed amount for your area and 25 percent of your home’s value.
If you have any questions about VA home loan limits, contact one of the approved lenders in our network.