Can a VA Loan Limit Exceed County Limits

Can a VA Loan Limit Exceed County Limits

A VA loan does not have a maximum lending amount.  The question is more about calculating the amount of money you can borrow without putting down any money.

For military homebuyers and those in and around the mortgage industry, the concept of the VA’s loan limits can be perplexing. You’re likely to come across a lot of misinformation and incorrect information on the internet.

In this article, we’ll walk you through the basics you need to know about the VA loan limits.

What is a Home Loan Limit?

VA loan limitations are the maximum loan amounts that the Department of Veterans Affairs can guarantee without requiring you to make a down payment.

The limits are the same as the conforming loan limits set by the Federal Housing Finance Agency. They don’t establish a limit on how much you can borrow; instead, they put a limit on how much you can finance with no money down.

In most U.S. counties, the standard VA loan limit in 2022 is $647,200, up from $548,250 in 2021. VA loan limitations have been raised for high-cost counties, with a single-family home loan cap of $970,800.

Veterans can get as much as a lender can offer without putting down any money with their full entitlement. However, vets who have active VA loans or have defaulted on a previous VA loan will see their zero-down purchasing power reduced.

What Is a County Loan Limit?

The county loan limit is a yearly dollar cap on mortgages that Fannie Mae and Freddie Mac will purchase or guarantee.

The conforming loan limit numbers imposed by the Federal Housing Finance Agency, which are the same limitations for FHA loans, closely reflect the VA loan restrictions. Every calendar year, the agency recalculates and determines the county limits. These new limits are based on actual living costs and the housing market situation, in particular real estate markets.

The county-specific VA loan limits are similar to how two homes of roughly equal size might differ dramatically in price based on geography.

For instance, a single-family home can obtain a VA loan of up to $612,250 in California’s Napa County. However, Ohio’s Franklin County has a VA loan limit of $417,000 for a single-family dwelling, a difference of nearly $200,000.

Also Read: VA Loan Limits by County

How Your Entitlement Affects Your Loan Limit

The full entitlement is available to all first-time VA borrowers. Furthermore, any borrowers who have used a VA loan to finance a house and have since totally restored entitlement have full entitlement as well. If you plan to sell a house funded with a VA loan and buy another, you may have full entitlement, which can be restored before closing. Loan limits don’t apply to you if you have your full entitlement.

You have partial entitlement if another VA debt currently occupies a portion of your entitlement, and you intend to keep it that way. Loan limits apply to partial entitlement. If you have partial entitlement, the maximum VA guarantee on all your VA loans combined cannot exceed 25% of the loan limit in your location. If your available entitlement is at least 25% of your loan, you can still get a VA loan with no money down.

Also Read: How Many VA Home Loans Can You Have?

Exceeding the County Loan Limit Using a VA Loan

The VA loan guarantee applies only to homes that cost less than the deposit. If the cost of the home exceeds the deposit, a deposit of up to 25% is typically required. Remember that the loan limit is based on the loan amount, not the home’s purchase price.

For instance, if you’re looking to buy a $747,200 home in a county with a lending maximum of $647,200, you’ll probably need to put down $25,000 (25% of $100,000, or the amount above the loan limit).

Nonetheless, many applicants will require funding over their local lending limit. There are several options available to them.

VA Jumbo Loan

A jumbo loan is the most straightforward option. Any house loan that exceeds local conforming limits is referred to as a jumbo mortgage. Although you would assume that jumbo mortgages have higher interest rates, this isn’t necessarily the case.

Jumbo loan rates are frequently comparable to or even lower than standard ones.

Where’s the catch? Jumbo loans are more challenging to obtain, and you’ll probably need a credit score of at least 700 and a 10–20% down payment.

A large house with less than 20% down will need private mortgage insurance (PMI). This will raise your monthly payments and the total cost of your loan.

May Need a Down Payment

What if the house you’ve been eyeing is way beyond the county’s VA loan limit? You are not prohibited from obtaining a VA loan to purchase the property, but you will be required to make a down payment. The difference between your VA loan entitlement amount, VA loan ceiling, and the home’s purchase price determines the amount of your down payment.

If you have the means, you may always make a larger down payment, and there are several advantages to doing so. For instance, with a larger down payment, you lower your outstanding balance on your property, lower your monthly payment, and pay less interest over the loan’s lifetime.

Funding Fee Amount

Your loan may still require the VA’s loan funding fee, which they charge for guaranteeing your loan. However, the VA may waive this fee for certain disabled veterans.  Alternatively, you can also roll the funding charge into your loan.

The VA loan funding charge for an active duty first-time borrower has been raised to 2.30%, with the subsequent use fee set at 3.60% under the new law. Other expenses associated with VA loan funding have also increased; greater fees may apply to VA refinance loans and other transactions.

What the VA Will Guarantee If You Exceed the Loan Limit

Military members and veterans are generally eligible for a basic VA loan entitlement of $36,000. If veterans meet the needed income and credit criteria and the property appraises for at least the purchase price, banks and lenders will lend up to 4 times the base entitlement ($144,000) without requiring a down payment.

For VA loans over $144,000, the maximum guarantee is up to 25% of the county loan limit. The county’s lowest limit is $647,200.

Therefore, if your house costs more than $144,000, the VA will only guarantee 25% of the loan, up to $647,200 or the high-cost county limit. Borrowers may get better loan rates because these loans are more attractive to lenders due to the guarantee.

What If You Are Purchasing in a High-Cost County

Higher loan limits will be assigned to locations that meet higher maximum-conforming loan restrictions. This is usually the case in highly costly metropolises where the local median home value is significantly higher than the baseline limit.

Home prices vary significantly from one state to the next and even from one county to another. This makes establishing a single conforming loan ceiling for the entire country difficult. For instance, there is no comparison between home prices in rural Ohio and Manhattan, one of the country’s most expensive real estate markets.

This is why the FHFA has a higher restriction for locations it considers “high-cost,” which is determined by comparing median property values to the baseline conforming loan limit.

The actual conforming loan limit varies depending on the median house value in a specific area and can range from 100 percent to 150 percent of the baseline conforming loan limit. This cap will be $970,799 in 2022. Use the FHFA’s interactive map to determine your county’s limit.

When to Use a Traditional Loan over a VA Loan

Though a down payment of a few thousand dollars isn’t insignificant, consider the advantages VA loans have over traditional loan products. Borrowers who use conventional loans must often put down 20% of the purchase price to qualify for favorable loan terms and rates, as well as no mortgage insurance. In the example stated above, a conventional loan would require a $100,000 down payment, whereas a VA loan would only require a $20,750 down payment.

 Also Read: Why Should You Choose VA Loans Over Conventional Loans?

The Bottom Line

If you plan to buy a house with a mortgage and have a large down payment, it’s crucial to know the maximum loan limitations in your county. While other loan types, such as jumbo loans, can get around the requirement of staying within a set price range, they do so at the expense of the benefits of a conforming loan.

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