The concept of the VA’s loan limits can be confusing not just for military homebuyers but even for people in and around the mortgage industry. You’re likely to find a lot of misconceptions and bad information out there online.
One of the most common misconceptions is that the VA loan limits represent the absolute maximum amount of money you can borrow using this long-cherished home loan benefit. The fact is there’s actually no maximum loan amount on a VA loan.
What these loan limits represent is how much a qualified military borrower can obtain without having to factor in a down payment.
Qualified VA borrowers have two layers of loan entitlement. In most cases, the first is $36,000, and the second is $68,250 for a total of $104,250. Since the VA pledges to guaranty a quarter of the loan amount to the lender, qualified VA borrowers in most parts of the country can purchase up to $417,000 ($104,250 x 4) before needing to make a down payment.
That’s a pretty sizable loan amount for no money down. But in some of the country’s more expensive real estate markets, even that size of a loan may still leave VA buyers at a disadvantage. To counter that, the VA institutes higher loan limits in costlier counties, basically increasing the amount qualified borrowers can get without having to put money down.
The 2016 loan limits cap out at $625,500 in the continental U.S and at $721,050 in Honolulu County, Hawaii. Qualified borrowers in these counties can obtain up to those amounts without having to make a down payment.
Buyers in these high-cost counties have more VA loan entitlement at their disposal. Instead of the typical $104,250 for full entitlement ($417,000 x 25 percent), a borrower in Honolulu has $180,262 in available entitlement ($721,050 x 25 percent). That can be a huge benefit if you already have a VA-backed loan or if you’ve lost one to foreclosure.
Down payments aren’t generally required on VA loans unless you seek a loan amount above the county loan limit. In those cases, the down payment must be 25 percent of the difference between the loan limit and the purchase price. For example, if the county loan limit is $625,500 and you want to buy at $725,500, you’d be on the hook for 25 percent of $100,000, meaning a $25,000 down payment.
The VA’s loan limits help level the playing field for military borrowers living in more expensive areas of the country. But for most VA homebuyers, the county loan limit will be $417,000. That’s often more than enough to keep pace with other lending options and housing costs.
Qualified borrowers who want to blow past those limits certainly can. Homebuyers considering a purchase above the county loan limit (or even below it in high-cost counties, depending on the amount) are entering “jumbo” financing territory. VA jumbo loans can be a bit tougher to land than a traditional VA loan in terms of credit and asset requirements. Jumbo borrowers may also need to put some money down. But these loans also offer a lot of big-time benefits for veterans looking for a large mortgage.