Contrary to common belief, home loans backed by the Veterans Administration (VA) have no cap on the upper range. While most eligible veterans opt for conventional loans, which have conforming loan limits, these limits are not imposed by the VA.
When loan officers refer to loan limits in association with VA loans, they are most likely referring to how much someone can borrower with zero down. A VA guarantee does not mean the borrower will be approved for a loan.
Who is eligible for a VA loan?
A VA loan is one of the most important benefits offered to current and former active duty servicemembers. The basic requirements are as follows:
- 90 days of active duty service during wartime
- 181 days of active duty service during peacetime
- 6 years in the Reserves or National Guard
For more information on whether or not you qualify for a VA loan, visit the VA website. Once eligibility is verified, the borrower must still show sufficient income and credit to qualify.
How does a VA loan work?
The VA does not lend money for the purchase of a home. Instead, the VA guarantees a portion of every loan in case of default. The money for the home loan still comes from an independent lender, such as Mortgages For Veterans.
Every qualifying veteran received a “basic entitlement,” which is what the VA will guarantee for a home loan. For most, this amount is $36,000. The VA commits to pay back the lender for financial losses if the veteran is unable to make the monthly payments. The VA basically acts as a free mortgage insurance policy.
Lenders can approve loans up to four times the entitlement amount without a down payment. Since that doesn’t buy much these days, the VA will guarantee up to 25 percent of a specific region’s conforming loan limit, which ranges from $417,000 to $625,000.
Can I borrow more than the VA limit?
Since the “limit” in question is based solely around a zero down payment, you can borrow beyond that limit with a down payment. For example, say you want to buy a $500,000 home, but your local loan limit is $417,000, an $83,000 difference. Your down payment would need to be approximately $21,000, or 25 percent of the extra $83,000 needed.
VA loans also typically carry reduced interest rates, making buying more expensive homes with your VA entitlement highly beneficial.