Written by Isaac F. Davis

The most frequently asked questions regarding VA loan limits and qualifying requirements can be answered right here.  Most borrowers want to know how much they can borrow with a VA mortgage. The answer has to do with entitlement, conforming loan limits, and qualifying standards of the VA home loan program. 

VA mortgage amounts can differ depending on a veteran’s entitlement and ability to pay.  Entitlement is a key component when answering the question of “how much”.   Entitlement is the amount the VA is willing to guarantee for each eligible borrower. Typically, entitlement, or the amount guaranteed by the federal government, works out to be about 25% of the VA loan.

 

Each eligible veteran starts with a basic entitlement of $36,000.  With that, he or she can get a loan of up to $144,000.  With that amount, a VA borrower may or may not be able to buy a suitable house depending on the area.  Many homes are valued higher than $144,000, and the VA realizes that.  Therefore, all eligible veterans are also awarded additional entitlement.  Sometimes called bonus entitlement, additional entitlement is $68,250.  Bonus entitlement can only be accessed when a VA loan exceeds $144,000. When added together, basic entitlement and bonus entitlement comes to $104,250 – enough for a VA mortgage of up to $417,000.

At least, $417,000 is the limit in most U.S. counties.  In some counties where the housing market is more expensive, the VA loan limit can be higher.  VA bonus entitlements are determined according to loan limits.  Take, for instance, Anchorage, Alaska.  In Anchorage County, VA loan limits are $625,500.  Therefore the VA will guaranty a VA loan of up to $625,500 with no money down.  In order to do that, a VA borrower’s total entitlement would have to be $156,375 – more than the average VA entitlement.  But, the VA loan limits indicate that some areas of the country cost more to live; and VA entitlements reflect that fact.

A loan of $625,500 is considered a Jumbo VA loan.  A Jumbo VA loan is simply one over $417,000.  There are two types of VA Jumbo loans:  those in counties where the conforming loan limit is $417,000, and those in counties where the conforming loan limit is higher.  The first requires a down payment, and the second typically does not. The Fannie Mae/Freddie Mac conforming loan limits are set for each individual U.S. county, and there are certain high-cost counties where the limits are higher than standard.

Some VA borrowers find it hard to keep up-to-date on VA mortgage limits because, from time to time, the VA makes adjustments to its limits as the economy and housing markets dictate.  For the latest on VA loan limits, those interested in the VA mortgage program should check with an experienced loan professional.

Being eligible for a VA loan of $625,500 and qualifying for a loan of that amount are two different things.  Though the VA sets no minimum credit score to qualify for a VA home loan, it does, by law, only guarantee loans when it is possible to determine that a veteran is a satisfactory credit risk and has proven income (present and expected) to repay the loan.  VA-approved lenders are responsible for determining debt-to-income (DTI) ratios and residual income for each potential VA borrower to help determine ability to pay.

The established debt-to-income threshold for VA loans is 41%.  Typically, if a veteran’s debt is 41% or less of his income each month, then a lender can consider a VA home loan for this borrower.  If DTI is higher than 41%, it doesn’t necessarily mean a borrower is automatically rejected.  Sometimes residual income, or what’s left over after subtracting all a borrower’s foreseeable expenses from his or her monthly income, is high enough to offset a debt-to-income of more than 41% for some borrowers.

Sometimes, VA-approved lenders may have additional qualifying guidelines for VA loans.  The Veteran’s Benefits Administration under the U.S. Department of Veterans Affairs establishes guidelines for the VA Loan Guaranty Program.  VA-approved lenders make the actual loans that are partially backed by the federal government. So, many of these lenders have to answer to private investors who also set lending guidelines that may differ from those of the VA.  So, many lenders must follow both the VA and their investors’ guidelines to determine the underwriting of each loan. 

Though VA-approved lenders have slight flexibility with qualifying guidelines, one VA recommendation is concrete.  The VA will not guarantee funds that exceed the purchase price.  A VA borrower wanting to finance improvements on a recently purchased property may be able to obtain a home equity line of credit or HELOC at the time of closing only if the home appraises for more than what it was purchased for.

We know that VA guidelines allow a borrower to refinance up to 100% of the home’s value using the VA mortgage program.  The current value must be determined by a certified VA appraisal.  After a VA borrower owns a home for a while, there may be equity in the home.  In this case, a qualified VA borrower can take cash out up to the current value of the home.  This is known as cash-out refinance and has similar qualifying standards as VA purchase loans.

Another type of refinance program available to veterans and active duty military members is the VA interest rate reduction refinance loan (IRRRL), better known as VA streamline.  Streamlining a mortgage means a borrower replaces one VA loan with another VA loan that has a lower rate and/or lower payments.  This is perhaps the easiest VA mortgage to qualify for because, often times, there is virtually little or no qualifying involved.  The refinance is called “streamline” because, frequently, no appraisal is necessary. VA borrowers have been able to take full advantage of historically low rates even if they owe more than the home is worth.  Also, much of the credit and income verifying necessary for underwriting regular VA loans and refinances is skipped for IRRRL. 

For answers to more of your VA loan questions please visit the DirectVALoans.com FAQ video library, or see the Direct VA Loans Youtube channel for additional VA Loan FAQ Videos.