Are There Loan Limits On VA Loans?
There are technically no limits to VA loans. There are only limits to how much the VA will guarantee. The VA will guarantee up to 25% of the loan amount for lenders in the event that you default on your loan. The amount the VA will guarantee is dependent on the amount of your VA entitlement.
For the purposes of this discussion, VA loan limits can be defined as the amount you can borrow without having to make a down payment.
VA Loan Entitlement And VA Mortgage Loan Limits
Most people getting a VA loan are going to have what’s referred to as full entitlement. If you have full entitlement, as of 2020, you don’t have a loan limit. The VA will guarantee 25% of whatever a lender is willing to approve you for.
How Do You Know If You Have Full Entitlement?
You have full entitlement under any of the following four scenarios:
- You’ve never used your VA loan entitlement.
- You’ve used your entitlement to buy or refinance a property previously, but you’ve since sold and fully paid off your VA loan.
- You had a previous VA loan that wasn’t fully paid off because of a foreclosure or short sale, but you’ve since fully repaid the VA.
- You paid off a VA loan without selling the property. You can have your entitlement restored this way one time.
What If You Don’t Know If You Have Full Entitlement?
If you’re unsure whether you have full entitlement, you can look at your VA Certificate of Eligibility (COE). It’ll say your basic entitlement is $36,000 if you have full entitlement. The figure assumes that the average home price is $144,000, but that is outdated in most of the country. Because of this, the VA recognizes the concept of bonus entitlement. You don’t need to worry about this except to know that the $36,000 figure isn’t really limiting the amount you’ll qualify for.
What If You Don’t Have Full Entitlement?
If your COE says that you have some number greater than zero, but less than $36,000, you have remaining entitlement, but not full entitlement. This is also referred to as impacted entitlement. If that’s the case, you are subject to a loan limit if you want to buy a home without a down payment.
Where loan limits apply, the VA relies on equations (discussed later) utilizing conforming loan limits put in place for conventional loans. These loan limits are dependent on where you live as well as the number of units in the home you’re buying. However, the standard conventional limit for a one-unit property in 2024 outside of high-cost counties, Alaska or Hawaii is $766,550.
VA County Loan Limits
Although the basic national limit applies in many cases, in areas that are considered high-cost counties for conventional loans, the higher limits are also applied in VA formulas. As an example, the area around New York City is at the top end of conventional loan limits. A one-unit home can have a mortgage as high as $1,149,825 without having to move up to a jumbo loan.
Beyond the issue of impacted entitlement, most lenders including Rocket Mortgage use county loan limits as the cut off for a VA jumbo loan. In many instances, you may still not have a down payment with full entitlement, but lending requirements may be more stringent. We require a median FICO® Score of 640 or better for a VA jumbo loan.
Mortgages And VA Loan Limits
In many ways, a VA loan is one of the most forgiving options for borrowers who have less-than-perfect credit. You can get a VA loan after Chapter 7 bankruptcy or a foreclosure in 2 years, for example. If you’ve had a foreclosure or short sale in the past, you just might have to make a down payment, which is based on your maximum entitlement. You can think of your maximum entitlement as 25% of your loan limit.
In the case of someone with impacted entitlement, their maximum guarantee from the VA for loans above $144,000 is the lesser of the following:
- 25% of the loan amount
- 25% of the county loan limit – the amount of entitlement that hasn’t been restored
The entitlement matters because most lenders, including Rocket Mortgage, won’t do the loan without a combination of entitlement and down payment from a borrower that’s equal to 25% of the loan amount.
Mortgages And VA Home Loan Limits: An Example
This will hopefully make more sense with a practical example. Let’s say that Casey wants to buy a $480,000 home with a VA loan but has $80,000 worth of unrestored entitlement. The conforming loan limit in the area that Casey is looking to buy is $766,550.
To see which entitlement limit applies in Casey’s case, we’ll run both formulas and see which comes out with a lower dollar figure. First, let’s look at 25% of the loan amount. It comes out to $120,000 ($480,000 × 0.25).
Now let’s take a look at the second formula, which is 25% of the county loan limit minus the amount of entitlement that wasn’t restored. That comes out to $111,637.50 ($766,550 × 0.25 - $80,000).
The VA guarantees $111,637.50 because it’s the lower of the two amounts.
Remember that lenders want 25% of the loan amount covered between down payment and entitlement. Therefore, in order to get a VA loan in this case, Casey would have to make a $8,362.50 down payment ($120,000 - $111,637.50).
As an alternative, Casey could look into purchasing with an FHA loan where the minimum down payment would only be $16,800 at 3.5% or a conventional loan where the down payment would be $24,000 at 5%. However, qualifying could be slightly more difficult if the impacted entitlement was the result of a previous foreclosure or bankruptcy. As an example, the waiting period for foreclosure with an FHA loan is 3 years and it’s 7 years for a conventional loan.
Although we’ve given examples as if this was a purchase, these entitlement limits apply equally if you’re looking into refinancing your VA loan. They could impact how much you would have to bring to the table in closing costs.
