The VA offers 100% financing to veterans with a pretty healthy loan amount maximum. In most counties, veterans can borrow as much as $453,100. If you live in a high-cost area, you may borrow as much as $679,650 and still have a jumbo loan.
So what does the VA consider a jumbo loan? It’s any loan amount that exceeds the county limit of $453,100 or $679,650 respectively. This means if you live in a high-cost county, you won’t need a jumbo loan unless you must borrow more than $679,650.
What’s the Difference With a VA Jumbo Loan?
There’s one major difference you must know if you need a VA jumbo loan. You will need to make a down payment. The VA will still allow you to borrow 100% of the funds up to the county maximum, so $453,100 in most cases. Beyond that amount, though, you will have to make a down payment.
Here’s how you can figure out how much of a down payment you will need:
Your needed loan amount – $453, 100 (or $679,650 if you live in a high cost area) = Loan amount difference
Loan amount difference x 0.25% = The necessary down payment
In other words, you must put down at least 25% of the difference between the amount the VA will guarantee and the loan amount that you need.
Other VA Jumbo Loan Requirements
Aside from the VA’s down payment requirements, you’ll face a few other VA jumbo loan requirements including:
- Reserves – Some lenders may require that you have reserves on hand. This is money that you must have in a liquid account that could cover your mortgage payments if your income stopped. Just how many months of reserves you need will vary by lender.
- Tighter credit score requirements – Some lenders may require higher credit scores than the typical 620 credit score requirement. This isn’t written in stone and can vary by lender. However, most lenders rely on the credit score as a measure of the borrower’s financial responsibility. Lending a jumbo loan amount is risky business, so lenders are going to be careful.
- Tighter debt ratio requirements – Typically, you can have up to a 43% debt ratio and still qualify for a 100% VA loan. With a jumbo VA loan, though, lenders often tighten up the restrictions. This helps them know that you will be able to make your mortgage payments without struggle.
Jumbo Loan Interest Rates
Generally speaking, you can expect to pay a slightly higher interest rate on a VA jumbo loan than a standard VA loan. This is because lenders take a higher risk giving you the higher loan amount. They also lose the VA guaranty on a portion of the loan, which is why you have to make a 25% down payment on the difference between the two amounts.
Lenders also base your interest rate on your other factors including your credit score and debt ratio. The fewer risky factors you provide the lender with, the less likely it is that they will hike up your interest rate.
As is the case for any loan, though, you are free to shop around with different lenders. The VA doesn’t write or fund the loans. They also don’t set the interest rates. Each individual lender decides what interest rate they would give you. If you don’t like the rate that one lender provides, try applying with a few other lenders to see if you come up with a different rate somewhere else.
Before you assume you need a VA jumbo loan, find out the county limits for your area. You can find a list of the loan limits here. If you truly do need a jumbo loan, take your time shopping around. Also, make sure you maximize your chances of securing the best approval by improving your credit score, lowering your debt ratio, and ensuring that your income/employment is stable.