2019 has seen an increase in conventional loan limits from $453,100 to $484,350. This change has prompted an increase in the VA loan limits throughout the US. In addition to the increase for standard counties, there are just shy of 200 high-cost counties that have higher loan limits for 2019.
The higher loan limits make it possible for veterans in certain counties to afford a home. If they had to abide by the standard loan limit of $484,350, they would not be able to use the full extent of the VA benefit, which offers 100% financing for eligible veterans.
The High-Cost Loan Limits
While there are just about 200 counties that have high-cost loan limits, we can help you understand the range of the counties so that you can see how your county may stuck up.
The highest cost county for 2019 has a loan limit of $726,525. A few counties with this limit include Anchorage, Los Angeles, and Maui. The lowest high-cost county limit for 2019 is $486,450, which is the limit for Nevada County in California. All other high-cost counties fall somewhere in the middle of these limits.
How do Loan Limits Work?
Now just because the name is ‘loan limit,’ it doesn’t mean that is the maximum amount that you can borrow. This limit means it is the most you can borrow without making a down payment. If you want/need to borrow more, you can, you will just need to make a down payment.
The VA requires you to make a down payment on the difference between the loan amount that you need and the loan limit for the area. The VA and VA lenders require a 25% down payment on that difference. The 25% down payment makes up for the guaranty that the VA will not provide on the amount that exceeds the VA loan limit.
The VA’s guaranty promises a lender that the VA will pay the lender back 25% of the loan amount that they lose should you default on your loan. If you borrow more than the guaranteed loan amount, the VA won’t pay back any amount that exceeds the limit. This puts the lender at risk for a loss, which is why they require a 25% down payment on the difference.
Do you Qualify?
The bigger question here, however, is do you qualify for the bigger loan? It’s not enough to say that the county limit is a certain amount. You have to prove that you can financially afford it. You do this with the following:
- At least a 620 credit score
- Enough income to keep your debt ratio at 41%
- Enough income to cover the disposable income requirement for your family size and location
- Proof that you have enough entitlement to cover the loan amount that you need, up to the county limit
As you can see, you can live in a high-cost county, but not qualify for the full loan amount. If you don’t have the income to cover the mortgage or your debts are too high to leave enough money for a mortgage payment of that amount, you won’t be able to qualify for the loan. You have to prove that you are a good risk or VA lenders won’t loan you the county limit loan amount.
Basically, the high-cost loan limits help those borrowers that make enough money to qualify for loan amounts higher than the conventional loan amount of $484,350. If you do need to make a down payment, you need to make sure that you can prove where the money came from and that it’s your money and not money from a loan.