Editor’s note: Effective January 1, 2020, there is no limit on the amount VA borrowers can finance with no money down. The VA loan limits referred to here no longer apply. This post will remain active for archival purposes.
VA Doesn’t Cap Its Loan Amounts
There is no stated loan limit on home price or loan amount with a VA home loan.
Mortgages backed by the Veterans Administration (VA) actually come with no upper cap, contrary to what’s commonly believed about these loans.
Many eligible veterans opt for a conventional or jumbo loan when buying a high-priced home, when a VA loan could offer better rates and terms.
Or they settle, and buy a home within VA’s supposed loan limit.
But that might be a mistake. VA mortgage rates today are lower than any other loan type. And, lower-credit borrowers could be approved, even at high loan amounts.
Truly understanding VA loan guidelines can unlock this loan’s full potential.Verify your new rate (May 26th, 2020)
Who Is Eligible For A VA Loan?
VA loans are one of the most important benefits available to those who have served in the U.S. armed forces.
Among those eligible are active-duty military personnel, veterans, reserve members, National Guard members and non-remarried surviving spouses.
Service requirements are as follows.
• 90 days of active duty service during wartime
• 181 days of active duty service during peacetime
• 6 years in the Reserves or National Guard.
Eligible status is determined with a Certificate of Eligibility (COE), typically available within a day and ordered by the VA mortgage lender with whom you apply.
Once eligibility is established, the veteran or active service person qualifies by showing adequate credit history, sufficient income and enough assets to cover VA closing costs.Verify your new rate (May 26th, 2020)
How VA Loan Limits Work
The VA “loan limit” refers to how much someone can borrow without making a down payment. It’s not a cap on how much they can possibly borrow.
Here’s how it works. Everyone eligible for a VA loan receives a “basic entitlement” of $36,000, which is a sum the VA will guarantee on a home loan.
The VA guarantee does not mean that all applicants will receive be approval. Rather, it refers to the backing the VA provides on the loan. The VA commits to pay back the lender any financial loss if the veteran is not able to repay the mortgage.
The VA guarantee can be thought of as mortgage insurance that the veteran does not pay for.
Lenders can approve a mortgage for four times the basic entitlement amount, or $144,000, without a down payment.
But the entitlement amount was established by the VA before home prices rose across the country. Now, $144,000 does not buy much in many areas of the country.
For this reason, the VA guarantees up to 25 percent of the purchase price based on the local loan limits. These limits match Fannie Mae and Freddie Mac conventional loan limits, which range from $510,400 to $765,600.
Going Beyond The Limits
What if you live in high-priced region – an area where $765,600 won’t cover the home you really want?
You can buy that more expensive home, and use a VA loan to do it.
You just need to make a 25 percent down payment on the amount by which you are above the VA limit.
This same principle applies to any home price. Say you wanted to buy a $1 million home in an area with a $600,000 local limit.
You would make a downpayment of $100,000.
- Sale price: $1 million
- Local VA loan limit: $600,000
- Difference: $400,000
- 25 percent of the difference: $100,000
VA loans for high-end homes can be very beneficial. The typical jumbo loan requires 20% to 40% down. In this case, the veteran gets a jumbo loan for just 10% down.
And, the rate is likely lower than that of a jumbo loan.
These and other advantages should make veterans reconsider their lending options, even whey they are looking at homes well above the published VA loan limits.Verify your new rate (May 26th, 2020)
Benefits of VA Loans
The biggest benefits of a VA loan are the basic entitlement and guarantee, which essentially serve as a down payment on homes within the loan limit.
Thanks to these, private mortgage lenders are usually willing to offer much more favorable terms to people who qualify for VA loans, including first-time buyers and (in some cases) people with less-than-ideal credit scores.
But these aren’t the only pluses. Other attractive features include:
- No private mortgage insurance (PMI)
- Competitive and negotiable interest rates
- Lower closing costs
- An assumable mortgage (the buyer can take over the seller’s mortgage payments)
- The right to prepay the mortgage without penalties
In addition to these advantages, veterans have access to cash out loans up to 100% of their home’s current value. Qualified applicants can use the cash to pay off debt, make home improvements, pay for college, or any other purpose.
Interest Rate Reduction Refinance Loans (IRRRL) are also available, if at any time in the future rates drop after the home is purchased. These loans require no income documentation, bank statements, or even an appraisal.
Collectively, these benefits often help active service members and veterans obtain mortgages that would otherwise be beyond their reach.
Unfortunately, a fair number of potential borrowers are either unaware of these benefits, don’t realize that they are eligible for them, or fail to take full advantage, often because they’re so focused on the “here and now” that they spend little or no time doing online research or talking with current and former service members.
What Are Today’s VA Rates?
VA rates are low, and the market VA home buyers can secure these low rates, even on high-dollar loans.
Get today’s real-time mortgage rates now. Your social security number is not required to start, and all quotes come with instant access to your live credit scores.Verify your new rate (May 26th, 2020)