VA Loan Basics: What is the VA Loan Limit?

Yes, there is a VA loan limit. But there isn’t a maximum VA loan amount.

Bewildered? Join the ranks of service members and real estate agents who are baffled by the mysteries of “VA loan limits.” Let’s wade through the confusion with a clear and simple explanation.

Federal Backing is Capped for VA Loans

VA loan limits will cap the amount of federal backing, not the amount of the VA loan itself.

What is the VA Loan Limit?

First off, understand that the term “VA loan limit” is a bit of a misnomer. The Department of Veterans Affairs doesn’t actually cap VA loans at a certain amount.

Instead, the VA loan limit is the amount of home a buyer can purchase before having to make a down payment. The loan limit represents the cap on the amount the VA will guaranty. The VA guaranty is typically equal to 25 percent of the loan amount up to the loan limit. As a result, when a buyer purchases over the loan limit, they have to put down 25 percent of the difference between the loan limit and the purchase price.

Limit is measured and given every year

VA loan limits are typically reviewed and re-issued each year.

How are VA Loan Limits Established?

VA loan limits are up for review at the end of each calendar year. Limits are set by county of purchase, and are based on area housing costs.

You can use this calculator to check out the VA loan limits for your county.

How Lenders Utilize VA Loan Limits

In most counties, the VA loan limit equals $424,100. But that doesn’t mean that a VA lender is limited to issuing loans up to the $424,100 benchmark. So how does the VA loan limit affect lenders?

The maximum guaranty offered on a VA loan equals 25 percent of the VA loan limit. As the loan creeps above the local VA loan limit, the guaranteed portion of the loan decreases.

And that puts a lender’s funds at risk. Most lenders are in the business of limiting risk, so they’ll typically require the homebuyer to make up the difference by putting down 25 percent of the difference between the loan limit and the purchase price, as discussed earlier. For example, if you want to purchase a home for $524,100 and the county loan limit is $424,100, then you’ll need to put down 25 percent of the difference between the county loan limit and the purchase price, in this scenario, that would mean a down payment of $25,000.

Hawaii is a High Cost County with High Limit

Hawaii counties have loan limits above the $424,100 standard.

High-Cost Counties Have Higher Limits

The default VA loan limit is $424,100. But that won’t buy much of a house in certain high-cost counties.

The VA sets higher loan limits for these high-cost counties. In the continental United States, the high-cost loan limit caps out at $636,150.

Those limits can be even higher in Alaska and Hawaii.

VA Loan Limits Set Through End of 2017

The VA loan limits expire on December 31 of each year. Prior to that date, the VA will conduct a review and issue VA loan limits for the following year. Be sure that you always have the most recent VA loan limits for your market, you never know if they will fluctuate from one year to another.

If you’d like additional information on the VA mortgage process check out this helpful guide.

Photos courtesy of Kevin Shorter, Images_of_Money and imgdive