Crunching The Numbers: What You Need to Know About VA Loan Borrowing Limits

Mortgages can be a daunting financial commitment for many people, but current and former members of the U.S. military have access to a unique home loan program:

VA loans.

VA loans offer a variety of benefits, including no down payment requirements and more flexible credit requirements. 

However, there are limits that you should be aware of when considering this option.

In this comprehensive guide, we’ll cover everything you need to know about VA loans, borrowing limits, and your entitlement as a current or former member of the military. 

What Are VA Loan Limits?

VA loan limits are the maximum amount of money the Department of Veterans Affairs (VA) will guarantee a lender on a VA loan without requiring the borrower to make a down payment. These limits vary based on the county where the property is located, and are influenced by conforming loan limits set by the Federal Housing Finance Agency (FHFA).

The VA doesn’t give out loans. Private lenders do. But the concept of VA loan limits changed after the Blue Water Navy Vietnam Veterans Act of 2019.

The Impact of the Blue Water Navy Vietnam Veterans Act of 2019

This act had major implications, completely transforming the landscape of VA loan limits.

It effectively removed the cap on loans for veterans who have full entitlement. This means that for those eligible veterans with full entitlement, there’s theoretically no limit on the amount they can borrow with a VA mortgage for a home purchase.

The Department of Veteran Affairs guarantees a portion of the loan, reducing the risk for mortgage lenders. This means veterans with full entitlement can often purchase homes without a down payment, a huge benefit that has made homeownership attainable for many.

Key Points on VA Loan Limits:

Unlimited Entitlement

As of 2020, qualified veterans with full entitlement (those who haven’t used or restored their entitlement after paying off a previous VA loan) no longer have VA loan limits. This means they can borrow as much as their lender approves without a down payment, provided they meet the lender’s credit and income requirements.

Limited Entitlement

Veterans with a remaining or used entitlement may still be subject to loan limits. If the veteran has an active VA loan or hasn’t restored their entitlement, the VA loan limits apply. In these cases, the loan limit will determine how much they can borrow before a down payment is required.

Navigating VA Loan Limits: What You Should Know

1. VA Loan Limits Depend On Location

County loan limits fluctuate based on the average home price in your area. High-cost areas, like those found in certain parts of California, have significantly higher loan limits compared to regions with a lower cost of living. To get a clear picture, it’s always a good idea to plug your county into the FHFA’s loan limit tool.

2. Loan Limits Can Impact Your Down Payment

With full VA loan entitlement, while there’s technically no VA loan limit, the loan amount surpassing your county’s limit may mean you’ll need to make a down payment.

Essentially, the lender is making sure they have that 25% coverage, and a down payment can bridge the gap if your entitlement falls short of covering it. The good news is, you can work directly with your lender to find out exactly how much of a down payment you’d need based on the home price and county limits.

3. Multiple VA Loans Change Things

Yes, it’s definitely possible to have more than one VA loan. But there are things to know about what this means for your VA loan limits.

If you’re considering purchasing a second home while still having an active VA loan, that second home is subject to those county conforming loan limits to determine the VA guarantee. Depending on those limits and how much entitlement you have left, this might mean a down payment on the new house.

4. Jumbo VA Loans Provide Options For High-Cost Areas

VA jumbo loans offer veterans a pathway to secure mortgages that surpass standard conforming loan limits. Although jumbo loans are subject to stricter requirements, they are particularly beneficial for those with full entitlement in areas where housing costs tend to be on the higher side.

5. VA Loan Limits Only Represent the VA Guarantee

Remember – this number doesn’t put an absolute cap on your loan amount. The VA loan limits are specifically referring to the amount that the VA will cover. Lenders have the ability to loan more than that limit. However, lenders will likely have additional criteria and requirements for loan amounts beyond what the VA guarantees.

County-Specific Limits

VA loan limits still apply in high-cost areas for veterans with partial entitlement. These limits align with the conforming loan limits set by the FHFA, meaning higher-cost counties allow for larger loan amounts without a down payment.

VA loans have no set maximum amount for borrowing. 

Eligible veterans can borrow as much as the lender is willing to provide.

However, there are limits on the amount of liability the VA will assume. This is known as entitlement, and it varies depending on your location and other factors. 

The basic entitlement is $36,000, which can go towards a home loan of up to $144,000. 

Having said that, it’s important to note that this is just the minimum, and many veterans may be eligible for a higher entitlement, which could result in a much larger loan.

In addition to the basic entitlement, the VA also offers additional entitlements in certain circumstances, such as purchasing a home in a high-cost area.

These additional entitlements can significantly increase the amount that you can borrow.

A VA loan can be a favorable option for borrowers with less-than-perfect credit. 

Even if you’ve had a foreclosure or filed for Chapter 7 bankruptcy, you may still be eligible for a VA loan after just two years. 

However, if you’ve experienced a foreclosure or short sale in the past, you may need to make a down payment based on your maximum entitlement, which is equivalent to 25% of your loan limit.

The “limit” refers to the amount that the VA guarantees for the loan, but it does not necessarily correspond directly to the amount that a borrower can borrow. 

The specific loan amount will depend on a variety of factors, including the borrower’s eligibility and the lender’s underwriting guidelines.

If you’re planning to use the remaining entitlement and your loan amount exceeds $144,000, you may need to make a down payment. 

This is because most lenders require that your entitlement, down payment, or a combination of both cover at least 25% of your total loan amount.

Here’s the silver lining: 

If you’re willing and able to make a down payment, you may be able to borrow more than the county loan limit with a VA-backed loan. 

Keep in mind that the lender will still need to approve you for a loan, and the size of the loan will depend on factors such as your credit history, income, and assets.

If your COE (Certificate of Eligibility) states that your basic entitlement is $0, it means that you have used your home loan benefit and have no remaining entitlement.

However, if your COE shows a basic entitlement greater than $0, it indicates that you may have some remaining entitlement and could potentially use your benefit again.

To determine the amount of entitlement you have already used, you can refer to the table titled “Prior Loans charged to entitlement” on your COE. 

This table lists the amount of entitlement you’ve already utilized.

(You can find this under the “Entitlement Charged” column.)

You may be able to restore your entitlement by paying off your VA-backed loan in full or repaying any claim that the VA has paid on your behalf.

Once your entitlement is restored, you may be eligible to use your VA home loan benefit again.