The VA is unique in the fact that they don’t have a maximum loan amount a borrower can have. However, they do have VA loan limits on how much they will guarantee. This basically limits their loan amount unless they want to put money down on the home.
Generally, the VA will guarantee up to $453,100, which is the national conforming limit in the United States. However, in high-cost counties, the VA may allow higher limits. We discuss these limits below.
How VA Loan Limits are Determined
First, let’s look at how VA loan limits are determined. Aside from the average counties where the maximum guarantee is the national conforming limit, high-cost counties have a limit based on the median home value in the area. This value is as determined by the Federal Housing Administration.
No matter which county you live, the VA will guarantee 25% of the posted maximum loan amount. In an average county, this means $113,275, of which $36,000 is basic entitlement and $77,275 is bonus entitlement.
What do VA Loan Limits Mean?
Contrary to how they sound, the VA loan limits don’t limit how much you can borrow. Your income, assets, and debt ratio limit that amount. Instead, what the VA limits control is how much you can borrow with NO down payment. For example, in Baltimore, Maryland, you can borrow up to $517,500 for a VA loan and put no money down. The VA will guarantee 25% of that amount or $129,375.
However, if you wanted to and you qualified for a $600,000 loan, you could get it. However, the difference is that you would have to make a down payment. The VA requires a down payment that is the difference between the VA loan limit and the actual loan amount. You would have to pay 25% of that amount, to take the place of the VA guarantee.
In this case you would pay:
$600,000 – $517,500 = $82,500
$82,500 x .25 = $20,625
You would need a $20,265 down payment in this case.
Qualifying for the VA Loan
No matter what the VA loan limits are, you have to prove that you qualify for the VA loan. This means that you have high enough income and a low enough debt ratio to qualify. However, the VA doesn’t put a lot of emphasis on your debt ratio. They would prefer if it was less than 43%, but they focus more on your disposable income.
What the VA wants to know is that you have enough money at the end of the month to cover daily living expenses. They don’t want any borrower struggling to make ends meet because they lent the borrower too much money. It’s not worth buying a house you can’t afford as it can only end up in disaster.
What this means is that even if you live in a high-cost area, you are not automatically eligible for a VA loan for the maximum amount. You must prove that you can afford it first.