Owning a home is an integral part of the American Dream and this is why the Department of Veterans Affairs supports veterans, active-duty members, reservists and National Guard members to buy their own home through the Veterans Affairs Home Loan Guarantee Program. This program is basically for eligible veterans looking to purchase their own home, but in order to receive this loan, certain eligibility and entitlement requirements have to be met. And this is where VA loan limits come in. So, what is a loan limit? To understand, continue reading.
What Are VA Loan Limits?
The US Department of Veterans Affairs does not set any restrictions on the amount you can borrow for the financing of your home. However, there are certain limits on the amount of money you can receive through the VA home loan program – this is essentially what VA loan limits are. This limit usually affects the amount of money an institution or lender will lend you.
In simple words, VA loan limits are the amount qualified veterans who have ‘full’ entitlement will be able to borrow without having to make a down payment. Please note the VA loan limits vary from county to county and state to state, as the value of the house primarily depends on its location. In addition, the closing costs also vary, as each veteran’s case is different.
The US Department of Veterans Affairs published the VA loan limits last year, but updated them again on February 28, 2014. Some of the limits increased in different counties, and a few actually decreased and in other counties, they stayed the same as before. So, what are these limits based on? Well, the limits are basically placed on the FHFA housing price reports. These reports show the sales prices of houses.
Generally, the Veterans Affairs Department will back approximately 25% of each borrower’s loan. Lenders will then determine the amount of down payment required. Of course, if you do not exceed the loan limit, no down payment is required. So, what is your loan limit? Well, if you have ‘full’ entitlement, you will be eligible for a loan of $417,000 with no down payment but a funding fee of 2.15%.
What Is The Maximum Guaranty Amount?
The maximum guaranty amount for most loans is $104,250 and this is known as the borrower’s entitlement. In other words, this is the amount of liability the Department of Veterans Affairs is willing to accept for a lender, if a borrower defaults. Please note the VA department does not provide the loan itself, but instead offers loans which are funded by private lenders.
What Happens If You Exceed the VA Loan Limit?
According to the lender’s handbook and VA Home Loan laws, a veteran can borrow more than the actual limit, but only in circumstances where the borrower is willing to secure a cash down payment. But, what about the funding fee? Well, for no down payment, there is a funding fee of 2.15%. For down payment of 5% to 9.99%, there is a funding fee of 1.75%.
And for a down payment of 10% or more, there is a funding fee of 1.50%. However, regardless of VA loan limits, it is imperative for borrowers to qualify based on their credit and income for a specific loan. Usually, veterans may not even be able to receive a VA home loan if they have a VA debt-to-income ratio which crosses 41%.
What Is Partial Entitlement?
There are basically two types of entitlements: Full and Partial. Full entitlement means you can get a loan up to $417,000. But then there are people who have partial entitlement. These people are basically VA-eligible borrowers who have used home loan benefits before. So, can they apply for a VA home loan again? Well, yes, of course they can but the funding fee structure is different for second-time users. In addition, if they have not restored their entitlement or still own the home they purchased, the VA department reduces the maximum guaranty amount based on the ‘remaining’ entitlement.
How Much Of The Limit Can You Exceed?
As mentioned earlier, the VA loan limits vary state by state. In certain housing markets, where the real estate market is on the rise, the limit can exceed $417,000. For example, in high-cost counties like Hawaii, Guam and Alaska, the maximum limit for a VA loan is $625,000.
Which county has the highest VA loan limits? Well, Honolulu has the highest limit of $721,050, but in even more expensive counties, like Massachusetts and Nantucket, loan limits have exceeded $1,000,000. To understand the maximum limit you can exceed in your state, you can consider taking a look at the VA lender’s handbook or your state real estate laws.
So, now that you are familiar with the maximum loan limits, opting for a VA loan to purchase a home won’t be a problem.