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VA Loan Limits

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Photo credit: © iStock/DanielBendjy

Are you a veteran? Thank you for your service! Are you looking to buy a home? Congratulations! Read on for the low-down on VA loan limits.

What’s my VA loan limit?

That depends. VA loan limits vary by county. In fact, within a single state the limit could differ by as much as $500,000 between counties. Limits are higher in wealthier counties where the cost of living is higher. In most places around the country, the current limit is $424,100. That applies to loans closed on or after January 1, 2017. But limits can top a million dollars in the most expensive counties.

What if I want to buy a house that’s above the maximum VA loan in my county?

If you’ve fallen in love with a house that tops the maximum in your area, don’t despair. When you look up the VA loan limits in your county, the number you see won’t tell you the maximum value of the home you can get with a VA loan. Instead, it tells you the limit of what you can get if you put $0 down.

If you have some money for a down payment, though, these limits might not apply to you. Got some money saved and want to buy a house that’s over the VA loan limits? What you need is a jumbo loan.

What is a jumbo loan?

A jumbo loan lets you finance the difference between the VA loan limit in your county and the value of the home that you want to buy. Say you want a house that’s $500,000, but the VA loan limit in your county is only $424,100. How will you finance that extra $75,900? With a jumbo loan.

To use a VA loan to finance this example home — or any home that’s over the local VA loan limit — you’ll need to come up with 25% of the difference between the home price and the loan limit. So, $75,900 divided by 4 is $18,975. You would have to make a $18,975 down payment to finance your $500,000 home.

That may sound like a lot of money (and it is!) but remember that with a conventional loan you’d likely have to put down 20% of the full home value, meaning a $100,000 down payment for our example home. Even with the 25% down payment requirement for jumbo loans, the VA loan is still a great deal.

What’s this “full entitlement” business I keep hearing about?

“Full entitlement” refers to the maximum possible amount of VA loan eligibility for a veteran or surviving spouse. The limits we publish at SmartAsset are the VA loan limits for applicants with full entitlement.

If you already have a VA loan, you’ve eaten into your entitlement. You might still have “remaining entitlement” that you could apply to another VA loan, though. In that case, a lender would likely approve you for a loan equal to four times the value of your remaining entitlement.

Do VA loans come with fees?

Yes indeed. VA loans come with what’s called a funding fee, which helps keep the VA loan system afloat. The funding fee is expressed as a percentage of the loan value. As of 2017, it's 2.15% for regular military officers and 2.4% for the reserves and National Guard on 0%-down payment loans to first-time veteran borrowers. For veterans accessing a VA loan for the second time, the fee for a 0%-down loan is 3.3%. Veterans who put a down payment on their homes will pay a smaller percentage in funding fees.

Certain people are eligible to have the VA loan funding fee waived altogether. These include veterans receiving VA compensation for service-related disabilities, veterans who would be receiving compensation for service-related disabilities if they weren’t already receiving retirement pay and surviving spouses of veterans who died in service or from service-connected disabilities.

If you pay the VA funding fee and then later discover you’re entitled to retroactive disability benefits going back to a date before your loan closed, don’t panic. Contact the VA and they’ll work on getting your fee refunded.

Is there a minimum credit score for a VA loan?

It sounds weird, but the VA doesn’t actually act as the lender for VA loans. Instead, they back the loans that conventional lenders like banks and credit unions supply to veterans. So although the VA itself doesn’t have minimum credit requirements for a VA loan, the lender you work with on financing your home likely will have a minimum credit score in mind. Usually this hovers around the 620 mark—considerably lower than with a conventional loan.

Are there special privileges for disabled veteran homeowners?

Aside from the fee exemption we mentioned earlier, there are other provisions for disabled veteran homebuyers. The VA offers grants to disabled veterans to fund accessibility modifications to homes. Many states also give property tax exemptions to disabled veterans.

What if I get stationed in another city and have to move?

Not to worry. Although VA loans are limited to primary residences and cannot be used for the purpose of financing a rental or investment property, you can rent out your home if you have to move for service-related reasons.

Do VA loans come with income requirements?

Photo credit: © iStock/DanielBendjy

Not exactly. The VA doesn’t care what you make overall, but they do care that you have enough income to cover your housing costs plus the necessities. That’s where the VA loan residual income requirement comes in. The residual income requirement is the VA’s way of making sure you don’t max out your budget on housing costs. When you get a VA loan, you’ll have to prove that you have enough money left over each month after your bills to pay for basics like food and gas.

Residual income requirements are calculated based on a few factors: the size of your VA loan, the size of your family, your debt-to-income ratio and your location. A single veteran in an inexpensive part of the country who took out a modest loan would need to provide proof of less money in residual income than a big family living someplace fancy.

Will my VA loan end up in the secondary mortgage market?

Probably. Most VA loans end up being packaged up by lenders and passed to Ginnie Mae, a government owned corporation that allows individuals and pension funds to invest in the secondary mortgage market. Ginnie Mae guarantees mortgage-backed securities for government-backed mortgages, but doesn’t buy them or sell the mortgage-backed securities. Ginnie Mae securities are backed by the full faith and credit of the U.S. government.

Can I use a VA loan to buy a bungalow in Bali?

Alas, no. VA loans are only available for properties in the United States or U.S. territories and possessions. Puerto Rico, Virgin Islands, American Samoa, Guam and the Northern Mariana Islands are all fair game if you’re looking to buy a home off the beaten path.

Does the VA limit the quality of homes that qualify for VA loans?

This is the other kind of VA loan limit, the kind that doesn’t have to do with dollars and cents. The VA likes to make sure that the homes people finance with their loans aren’t too run down. Homes financed with a VA loan need to be safe, structurally sound and sanitary. You’ll be hard-pressed to get a VA loan on a tear-down, in other words.

And now for some final words of advice...

If you decide to work with a realtor, it's a good idea to find one who is familiar with VA loans. As we’ve just covered, VA loans come with their own set of limits and complications and working with a real estate agent who doesn’t know the system can make the homebuying process more of a headache.

Cultivate your credit. What do we mean by that? First, know what your credit score is now and then work on making your credit as good as it can be. That means paying off credit card bills in full every month you can afford to do so. And don’t charge big purchases until after you close on your home to avoid setting off any alarm bells for your lender.

Don’t be afraid to ask for help. We’re not saying it’s as tough as basic training, but navigating the homebuying process can be pretty tough. Reach out to the VA and other veterans’ groups if you need to.