When you apply for a VA loan, you have certain limits you must follow. VA lenders must make sure you can afford the loan and still have enough money left over to cover your daily living expenses. But is there a limit to the VA loan?
Technically, veterans can borrow up to the national conforming amount of $453,100 on a VA loan. Each veteran starts off with basic entitlement, which is a loan amount of $144,000, plus any bonus entitlement they need up to $309,100. This doesn’t mean you automatically qualify to receive a loan amount of $453,100. It also doesn’t mean that you can’t get a loan for more than $453,100 either.
The VA Loan Guarantee
The VA guarantees 25% of your loan amount up to $453,100. Once you use up a part or all of that guarantee, you cannot use it again. The only way you can reuse your benefit is to pay off the existing loan and sell the home tied to it. Then you can petition the VA to reinstate your entitlement, allowing you to start all over again.
Because the VA guarantees the loan, they have to have a maximum, which is $453,100. But if you happen to qualify for a loan with a higher loan amount, you may take it. The VA will only guarantee up to the $453,100, though. That means that you’ll have to make a down payment. Typically, VA loans don’t require a down payment, but that’s because of the VA guarantee. The lender uses that guarantee as your down payment.
If you want to borrow more than you are entitled to, you have to put down 25% of the difference between the VA guarantee and your loan amount.
Here’s an example:
You have full VA entitlement of $113,275, which equals a loan amount of $453,100. You find a home you want to buy for $500,000. You have the credit score, income, and debt ratio to qualify for a $500,000 loan. In order to get it, though, you will have to put down $11,725 or 25% of the difference between $500,000 and $453,100.
Watch Your Debts
Technically, the VA doesn’t have a maximum debt ratio they allow. The program is one of the most flexible programs around. In general, lenders will maximize your debt ratio between 41% and 43%, though.
Where the VA is strict, though is with your disposable income. They want to know how much money you have left after you make your mortgage payment and other monthly obligations. It’s important to the VA that you have a certain amount left based on your location and your family size. In other words, they want to make sure that you have enough money to cover the daily cost of living without sacrificing. That’s where you may run into certain VA loan limits. If a certain mortgage will decrease your disposable income too much, the lender will have to decrease your loan amount in order to make sure you have enough money to pay your daily living expenses.
Each Lender is Different
Keep in mind that each lender has their own requirements. The VA sets the basic guidelines, but the VA-approved lenders have the final say. They can’t go around the VA requirements, but they can add to them. It’s called a lender overlay. It’s the lender’s way of protecting their investment in your home.
Because each lender has different guidelines, it’s important to shop around. Ask different lenders what they require. You will find that some have lenient requirements while others are stricter and make it harder to qualify for a loan.
If you run into a problem getting the loan amount you need for a VA loan, shop around. If it’s a problem with your disposable income or you’ve reached your full entitlement, though, shopping around won’t help. The VA will limit your loan amount at that point. If it’s a matter of lender overlays, though, you can shop around to find a lender that will follow the basic VA guidelines without adding to them.