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VA Loan Limits

VA Loans - Loan Limits

VA Loan Limits are the maximum size of a loan and the type of dwelling that meet VA guidelines and will be guaranteed. Another big factor that plays a role in the limits? Location. Limits vary by county and sometimes by city.

VA Loan Limits

Let’s start with the maximum loan amounts. These are set assuming that borrowers are doing the following:

  • Putting $0 money down (“zero down”)
  • Have good/excellent credit
  • Are eligible for the full VA benefit

This is a bit goofy, but check out this explanation of how loan limits are set. The Department of Veterans Affairs does not cap how much one can borrow. Instead, the VA caps its loan guarantee to 25% of the total loan amount. So even though the VA doesn’t cap the loan amount, they cap their guarantee (a form of insurance) which affects how much money private lenders would be willing to lend.

In case you skipped earlier chapters of this guide, private lenders follow the VA’s guidelines and then make loans to Veterans. The VA is not a lender. Anyway, private lenders love that VA guarantee; it reduces their risk of losing dough if a borrower defaults. And it means they can make more loans to eligible veterans.

Please note: The maximum loan amounts below makes the assumption that the borrower’s debt to income ratio (DTI), credit and other qualifying factors are solid.

Without further adieu, here are the current loan amount limits:

  • $424,100 with no money down, in most of the country
  • $636,150 with no money down, in high-cost counties/metros

Let’s talk about why counties and cities are mixed into the loan limits.

Location Matters: Counties and Cities

One of the ways loan limits are determined is by looking at average home prices in a given geographical area, either by county or by city. The highest limits are found in America’s most expensive cities like New York and Los Angeles. This is a good thing. Here’s why: Accounting for differences by county and sometimes city keeps homes affordable for veterans regardless of where they live.

Lenders typically loan up to 4x of that amount when there is zero down payment (again, assuming the borrower’s credit is sufficient). The basic VA entitlement is $36k for each eligible veteran.

Lenders can take on more risk if they wish and make loans in excess of a county’s loan limit. But the VA guarantee will still be restricted to 25% of the county loan limit.

Interest Rate Reduction Refinance Loans (IRRRLs), are not subject to county loan limits. This makes complete sense. Here’s why: Say home prices in your area have gone way up while current interest rates are lower than your existing mortgage, you will still be able refinance and reduce your monthly payment.

Big Homes are OK, Too

Let’s drill down for a second. VA loans can be used on bigger homes than most people think. We hear “loan limit” and think: That’s it? There’s actually more to the story.

First, VA loan limits apply to the loan amount that is backed by the VA, not the home value. If you’ve been saving up money for a down payment or have equity from a previous property that you are going to use for a home purchase, you have even more price headroom. Borrowers can actually go over the loan limit if they put up at least 25% of the amount greater than the county limit.

Remember, the VA guarantees loans up to the county loan limit if borrowers are putting $0 down. You can go beyond the limit if you:

  • Have good credit
  • Have cash for a down payment
  • Can pay the funding fee, in cash, for loans over the county loan limit

Types of Dwelling

VA-guaranteed home loans can be used to buy a single family home, condominium or townhouse. Loans can also be use to build a home or make energy efficient improvements. The home must be occupied by the borrower, not a renter. So apartment and office buildings are off the table.