The VA home loan benefit allows a qualified borrower who has met the minimum time-in-service requirements to apply for a home loan with no money down in most cases, and with a potentially lower interest rate than a conventional mortgage for the same kind of property.
VA mortgage loans are different than other home loans for this reason-the zero down option and a more forgiving set of credit requirements combined with a government guarantee to the lender make this type of home loan very attractive for lender and borrower alike.
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VA Loan Guaranty Limits
VA home loans are limited after a fashion by the VA loan guaranty limit; this is something that can be confusing to some first-time home buyers due to the assumption that the guaranty limit is a ceiling for how much you can borrow to finance your real estate.
But the Department of Veterans Affairs, in spite of these loan guaranty limits, does NOT place a cap on the amount of money a financially qualified borrower can apply for to finance the purchase. The VA loan guaranty limit is basically a limit to how much responsibility for the loan the VA will take on.
The VA official site addresses this issue stating, “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.”
VA loan guaranty limits are set each year and are subject to change due to legislation, VA loan program policy changes, and other variables. Borrowers who need to learn what the VA loan guaranty limits for their county are currently at should contact the VA directly or ask a participating VA lender.
Here are the most recent VA Loan Limits by County.
VA Home Loan Entitlement
The basic VA home loan entitlement available to each eligible Veteran is $36,000. That sounds like an impossible figure to deal with given that house prices are often greatly in excess of that amount.
But as the VA official site tells us, participating VA lenders will generally approve loans “…up to 4 times a Veteran’s available entitlement without a down payment, provided the Veteran is income and credit qualified and the property appraises for the asking price.”
But what happens when the price of the home exceeds even this amount? Enter the VA Jumbo Loan, which is an option that does require money up front as a down payment, but only on the amount of the loan that exceeds the VA loan limit in that area.
Understanding VA Jumbo Loans
There are different VA loan limits depending on the county you are buying the home in; there is a standard VA loan guaranty limit, and a high-cost area VA loan guaranty limit. The first thing you will need to find out in order to know if you need a regular VA mortgage or a VA Jumbo Loan is the loan limit for the county you wish to purchase a home in.
VA loans for homes that are priced at or below the average loan limit don’t require a down payment and don’t need the “Jumbo” aspect. The only exceptions to the no down payment feature are:
- Cases where a borrower’s credit report indicates a higher risk and the participating VA lender requires money down as a compensating factor.
- Situations where the asking price is higher than the appraised value and the borrower wants to proceed with the loan anyway. In such cases the difference between the appraised value and the asking price must be made up by the borrower in cash and cannot be financed into the VA mortgage.
VA loans for homes that have the “average” loan guaranty limit but are priced higher than that limit will have the following rules apply if a Jumbo Loan is needed:
- The qualified borrower pays nothing down on the sale price of the home up to the limit for an average-priced market which is $484,350 at the time of this writing.
- For any amount over the limit, VA Jumbo Loan rules required a 25% down payment on the amount greater than $484,350.
- VA Jumbo Loans for homes purchased in counties that have the high-cost VA loan guaranty limit, the following rules apply:
- The VA borrower pays nothing down on the maximum amount for the VA loan high-cost county limit.
- There is a required 25% down payment on any amount in excess of the VA loan high-cost county limit.
Additional Rules For VA Jumbo Loans
VA Jumbo Loans come with some restrictions. Manufactured homes are not eligible for the VA Jumbo program, the Jumbo Loan guaranty limit for multi-unit homes is identical to the single-unit amount, and you cannot apply for an adjustable rate mortgage loan under the VA Jumbo Loan program, only fixed rate loans are approved.
VA Loan funding fee issues are also different for this type of lending. In most cases, the VA loan funding fee can be financed into the loan. But that is not true of the Jumbo Loan, which requires VA loan funding fees to be paid in cash by the veteran borrower or the seller of the property.
This is not a problem for some veterans, who are exempt from paying the VA loan funding fee due to receiving or being eligible to receive VA compensation for service-connected disabilities.
The VA loan funding fee exemption in such cases is not automatic and must be applied for.
Borrowers Who May Be Exempt But Await An Official Decision
Borrowers who are waiting for a VA determination on a medical claim that would make them exempt will find that unless the VA has an official determination ready and can formally approve the borrower for VA compensation, they will be required to pay the funding fee and apply for a refund later once the official VA decision is on their record.
These refunds are not automatic and must be applied for. You may need to contact the lender to request instructions on how to apply for the funding fee refund, and you can also contact the Department of Veterans Affairs on how to proceed.
VA Jumbo Loan Interest Rates
There are a number of variables that will affect the interest rate you are offered on a VA Jumbo Loan. The first of these is the daily market fluctuations in mortgage loan interest rates, and another is the participating lender’s choices on what rates to offer.
But your credit report will play an important role in determining the rate you are offered, too. FICO score ranges are not specified by the VA for home loan approval, unlike other government-backed mortgage loans such as FHA mortgages which feature FHA-set minimum standards and lender-based additional standards that may be higher than the FHA loan minimums.
You will need to ask a participating lender what current interest rates and FICO score ranges are for VA Jumbo Loans and plan accordingly.
Other Considerations For VA Jumbo Loans
You may find that applying for a VA Jumbo Loan requires some additional planning and saving time due to the 25% down payment requirement on any amount in excess of the county loan limit. But there are other factors to consider, too.
You may find that your participating VA lender requires higher FICO scores and better credit history overall for loans exceeding the VA loan guaranty limit. FICO scores can be an important factor in both the availability of the loan, but also the interest rate and other terms that might be open to borrowers with better credit versus those who have had credit trouble in the past.
It’s always recommended to start planning and saving at least a year ahead of your home loan application, but with Jumbo Loans you may need to begin saving earlier since the down payment and the VA loan funding fee (where applicable) will both be required as cash to close.
Buying real estate with a VA loan includes another important consideration, too. VA Jumbo Loans cannot be used for homes the borrower does not intend to live in as the primary residence.
VA loans in general have an occupancy requirement and your lender will ask you to sign a legally binding agreement that the real estate you purchase with your VA loan, Jumbo or otherwise, is to be your home address.
The VA occupancy rules are non-negotiable, but those who wish later on to use a property purchased with a VA mortgage loan can refinance it with a non-VA loan or with a VA Interest Rate Reduction Refinance Loan (VA IRRRL) which requires the borrower to certify only that the home was used as the primary residence under the original mortgage. VA IRRRLs don’t require the borrower to occupy the property as the home address going forward with the refi loan.