The Veterans Administration's VA home loan program is a great benefit available to veterans, active-duty service members and those who serve in the National Guard and Reserves. Its terms are more generous than those of any other government-backed mortgage program, because there is no down payment requirement and no monthly mortgage insurance premium. (Borrowers do pay an upfront funding fee, but they can choose to wrap it into their loan.) Even better, there are no mortgage loan limits in the VA program. In this article, you'll learn how to apply for a VA home loan in any amount.
VA Loan Limits for 2015 – Sort Of
No loan limits?! That is correct. It's right on the VA Web site: "VA does not set a cap on how much you can borrow to finance your home. However, there are limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend you. The loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a down payment. These loan limits vary by county, since the value of a house depends in part on its location."
For 2015, there has been a change in the amount of the VA home loan guarantee. At the end of 2014, Congress changed the VA's maximum guarantee to align it with limits set by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. They vary by county or metropolitan statistical area (MSA) and are based on median home prices in those areas. So the VA guarantee is 25 percent of those loan limits. In most areas, that's $417,000, and the amount guaranteed is $104,250, but in more expensive locations the VA loan limits are higher, maxing out at $721,050. This change did reduce the amount of the VA's guarantee in the most costly markets. (Previously, the program guaranteed purchases exceeding $1 million in the most expensive parts of the country.)
How the VA Loan Program Works
Typically, lenders will allow 100 percent financing equal to four times the maximum amount of the VA guarantee for the property location. For example, a veteran with full entitlement purchases a $400,000 home in an area where the guarantee limit is $104,250 (25 percent of $417,000). The VA will back $100,000 of her loan and she will not be required to make a down payment.
Understand that while most lenders establish their guidelines according to the GSE limits, others will allow you to exceed them.
VA Loans for Rental Property
Another use for a VA mortgage that is not addressed very often is to purchase multi-unit properties. As long as you live in one unit, you can rent the others out, offsetting your mortgage payment. In addition, loan limits for multi-unit properties are higher. In most areas they are $533,850 for duplexes, $645,300 for tri-plexes and $801,950 for four-plexes.
VA Jumbo Mortgages
Some lenders advertise that they offer "VA jumbo mortgages." In most cases, they are making use of the rule that allows borrowers to put up 25 percent of the difference between the maximum guarantee and the home purchase price. It's really just the same VA loan with a down payment.
For example, a veteran with full entitlement chooses to purchase a $500,000 home in a county with a $417,000 limit. His maximum guarantee is $104,250, which is 20.85 percent of $500,000. His lender may approve a loan with no down payment and 20.85 percent backing by the VA, or it may require a down payment from the borrower. To cover 25 percent of the purchase price ($125,000), the lender would require a $20,750 down payment ($125,000 - $104,250). That's not a bad deal -- $20,750 is only 4.15 percent of $500,000.
The Bottom Line
To summarize, if you want to buy a home with no down payment, most lenders will require you to stay within the limits set by the GSEs. You'll have to look a bit harder to find one willing to go higher with 100 percent financing. However, most lenders will allow you to exceed the GSE limits if you can make the required down payment. (That's 25 percent of the difference between the purchase price and the area GSE loan limit.)