If you’re a U.S. military veteran or active-duty service member, you’re eligible for special benefits to help you buy a home. The VA home loan program, backed by the Department of Veterans Affairs, is often favored because it lets qualified homebuyers purchase with zero down. Many are curious about VA Loan Limits and if there’s a maximum amount they can borrow. Understanding VA Loan Limits is important as you plan your home purchase. But before we jump into the specifics of this year’s VA Loan Limits, let’s explore why these loan limits are different than they were just a few years ago.
Table of Contents:
- Understanding VA Loan Limits
- How to Determine Your Zero-Down VA Loan Amount
- Example: Buying with Remaining Entitlement and No Down Payment
- Making a Down Payment: Reducing Your Costs and Building Equity
- When Do VA Loan Limits Change?
- VA Loans: Why They’re Still a Solid Choice
- Conclusion
Understanding VA Loan Limits
The Blue Water Navy Vietnam Veterans Act, passed in 2019, created a significant change for veterans seeking VA home loans. For veterans with full entitlement, it essentially eliminated limits for VA loans starting in 2020. This means those who qualify could potentially buy a home at any price with backing from the U.S. Department of Veterans Affairs, regardless of how expensive.
But, What About Remaining Entitlement?
You may be wondering, “What about those with remaining entitlement?” This is where VA Loan Limits are still relevant. With remaining entitlement, the limits help determine the maximum you can borrow without making a down payment. These VA Loan Limits typically align with the conforming mortgage loan limits, which are reviewed each year by the Federal Housing Finance Agency (FHFA).
Think of it this way: The VA guarantees a portion of the loan to lenders, giving them reassurance. This guarantee percentage is connected to the county loan limit. To find the current limits for your county, you can check the FHFA website.
If you’re unable to meet the full entitlement criteria, don’t worry. You can still get a VA Loan; you might just need a down payment. The amount depends on factors like the price of your desired home, the amount borrowed, and your financial situation.
Full Entitlement vs. Remaining Entitlement: A Breakdown
Understanding entitlement is crucial for navigating VA Loan Limits. Let’s clarify what it means to have full entitlement or remaining entitlement.
Full Entitlement
If any of the following situations apply to you, you likely have full entitlement, and wouldn’t need to worry about loan limits:
- You’ve never used your VA home loan benefit.
- You paid a previous VA loan in full and sold the home.
- You experienced a foreclosure on a previous loan but repaid the VA in full.
In all these scenarios, you get your full entitlement restored.
Remaining Entitlement
You might have remaining entitlement in the following scenarios:
- You currently have an active VA loan.
- You refinanced your VA Loan into a non-VA loan, but you still own the home.
- You had a short sale on your VA Loan and haven’t fully repaid it.
- Your home, purchased with a VA Loan, was foreclosed.
- You transferred your home title to the bank (deed in lieu of foreclosure) to avoid foreclosure.
How to Determine Your Zero-Down VA Loan Amount
Even with remaining entitlement, you can still determine the maximum loan amount without a down payment.
- Refer to the FHFA’s list to locate the VA loan limit for your county.
- Multiply your county’s VA loan limit by 0.25 to calculate the maximum guarantee for that county.
- Multiply your original loan amount by 0.25 to determine how much of your entitlement you’ve already used.
- Calculate your remaining entitlement by subtracting the amount you used (step 3) from the maximum guarantee (step 2).
- Multiply the amount from step 4 (remaining entitlement) by 4. This final number represents how much you can borrow without a down payment.
Example: Buying with Remaining Entitlement and No Down Payment
Let’s illustrate this with a real-life scenario. Imagine you’re a veteran who previously had a VA loan of $250,000. Your orders have come through, requiring you to relocate, but you haven’t sold your previous house yet. You find your dream home in Marin County, California, a popular, high-cost area. After checking the FHFA website, you see the VA loan limit for a single-family home in Marin County is $1,149,825.
How much can you borrow without needing a down payment? Let’s calculate:
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- The VA Loan Limit for Marin County, CA = $1,149,825
- Maximum VA guarantee = $1,149,825 x 0.25 = $287,456
- Entitlement used from the previous loan = $250,000 x 0.25 = $62,500
- Remaining Entitlement = $287,456 – $62,500 = $224,956
- Maximum borrowable with no down payment = $224,956 x 4 = $899,824
In this example, the veteran could buy a home worth up to $899,824 in Marin County with zero down using a VA Loan. If they wanted a more expensive home, a down payment would be needed, typically a minimum of 25% of the amount exceeding the VA loan limit.
Making a Down Payment: Reducing Your Costs and Building Equity
What if your ideal home costs more than your zero-down limit? You might need to make a down payment on your VA Loan. This situation typically arises when using your remaining entitlement, and the home’s price exceeds the calculated amount you can borrow without a down payment. However, there are advantages to making a down payment in this scenario.
Putting money down, if you can, benefits you over time. Why? It reduces your loan amount and decreases the total interest you’ll pay. This leads to lower monthly mortgage payments and provides instant equity in your new home.
When Do VA Loan Limits Change?
You now understand how VA Loan Limits work for those with remaining entitlement. But are these limits fixed, or do they ever change? These limits are adjusted annually to reflect the ever-changing housing market.
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The FHFA is responsible for establishing conforming loan limits for different counties. These limits are directly tied to median home prices in each area. Since home prices constantly fluctuate, the loan limits are adjusted yearly, with adjustments taking effect at the beginning of each year. The closing date of your loan determines which year’s VA Loan Limit applies. Even if you started the application process the previous year, if you close on your loan after January 1st, you’ll use the current year’s limits.
VA Loans: Why They’re Still a Solid Choice
What if you want a home that exceeds the VA guarantee? Should you still use a VA loan? You might be surprised, but several reasons make VA loans a powerful homebuying tool. Imagine having the flexibility of a lower down payment than a conventional loan and not needing private mortgage insurance (PMI). Avoiding PMI can significantly lower your monthly mortgage payment, freeing up funds for other expenses.
Additionally, VA loans often have competitive interest rates. VA loans are backed by the VA, providing lenders with added security and leading them to offer lower interest rates compared to traditional mortgages. This benefit saves you a significant amount of money over the life of your loan.
While VA loans offer many benefits, remember that each veteran’s financial situation is different. It’s wise to explore multiple lending options and find what works best for you. Consulting with mortgage lenders specializing in VA loans can provide personalized guidance and help you make informed decisions. They can also provide insights into additional loan resources, such as down payment assistance programs or grants, that might be available to you. Remember, securing a mortgage is a significant financial decision, and having expert advice can make the process smoother.
Conclusion
VA Loan Limits are a key part of this valuable benefit for veterans. You now understand how these limits have changed with the Blue Water Navy Vietnam Veterans Act. If you’re a veteran or military spouse planning to use a VA Loan, whether you have full or remaining entitlement, staying informed is essential for making sound financial decisions. Be sure to consider factors such as county loan limits, your down payment capabilities, and compare different lenders’ offerings. By doing your research and seeking expert advice, you can confidently navigate the path to your dream home using your VA benefits wisely.
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