VA loan limits for 2012 have rolled back to pre-2009 levels.
For most VA borrowers, that doesn’t mean much, if anything. But veterans who live or want to purchase in the country’s high-cost areas are certainly feeling the pinch and facing down payment requirements that might put homeownership out of reach.
Let’s start by explaining the VA’s loan limits. There is no maximum loan amount on a VA loan. The loan limits vary by county and represent the ceiling for the maximum guaranty on a loan, which is 25 percent of the loan limit. On any loan above that limit, the borrower is responsible for putting down at least a quarter of the difference between the loan amount and the loan limit. For the vast majority of the country, the loan limit is $417,000, an amount that a lot of VA borrowers don’t get anywhere near.
But in some of the nation’s more expensive counties, that loan limit would put VA loans at a serious disadvantage, which of course would make it difficult for borrowers to use this hard-earned benefit. So years ago the VA instituted higher loan limits for these high-cost areas. Those limits were increased even further after the financial crisis of 2008. For example, the 2011 loan limit for Alameda County, Calif., was $1 million, while the limit for Fairfax County, Va., was $818,750.
At the end of last year, the high-cost loan limits rolled back to pre-2009 levels. There were several attempts in Congress to extend the higher limits but ultimately nothing came to pass.
The 2012 limits fell precipitously in a lot of places. For those counties we mentioned earlier (Alameda in California and Fairfax in Virginia), the limits dropped to $625,500. That means veterans looking to purchase in Alameda County suddenly saw $374,500 slashed from their limit.
The inevitable question is, “So what?”
The “so what” is this: In a high-cost market where home prices haven’t tanked, a VA borrower might have to seek a loan beyond the county limit. Some lenders might balk altogether. Veterans who are lucky enough to find a willing lender will be on the hook for a down payment equal to at least 25 percent of the gap. So, for example, a borrower who wants to purchase a $775,000 home in Alameda County would have to put down at least $37,375 in cash to secure financing. A year before, that same borrower would have been able to purchase without shelling out a single dollar up front.
Again, I know this isn’t an issue that affects the vast majority of VA borrowers. The average purchase loan amount in 2010 was just over $211,000. But any changes that impinge on a veteran’s ability to utilize their VA home loan benefits are worth talking about.
You can check out the complete list of 2012 VA Loan Limits at the VA website.
Photo courtesy of Images_of_Money