The VA provides veterans with 100% financing, but there are limits to how much you can borrow. The VA will guarantee a specific amount of money for each borrower. In general, every veteran is subject to the same limits, but there is an exception. Veterans that live in high-cost counties may be able to borrow slightly more and still not have to make a down payment.
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The Basic VA Loan Limits
Effective January 1, 2018, the VA loan limit for most veterans is $453,100. This is the same limit as conforming loans have this year. This means in a majority of areas, you can borrow up to $453,100 and not make a down payment. If you live in one of the VA’s high-cost counties, you can borrow up to the maximum for your county without making a down payment.
This doesn’t mean you are approved to borrow up to $453,100, though. You still have to qualify for it. In other words, you must prove that you can afford the payments and still have enough residual income at the end of the month.
The VA loan limits are also not a cap on the price of the home you can buy. You are free to apply for a loan for a higher amount. You will be responsible for making up the difference between the maximum loan amount and your loan amount, though. While you don’t have to pay 100% of the difference, you do have to put down 25% of the difference.
Here’s an example. If you want to buy a $550,000 home, the VA will guarantee $453,100 of that loan, assuming you qualify for it. You would then be responsible to put down $24.225, which is 25% of the difference between $550,000 and $453,100.
You must make the 25% down payment on the difference because that is equal to the guarantee the VA would have provided had you not exceed the VA loan limit.
Certain areas of the country are ‘high-cost.’ In other words, it costs more to live in these areas. When the cost of living is higher, the price of homes is usually higher too. According to the FHFA, high-cost areas are areas that 115% of the homes are worth more than $453,100 or the normal loan limit.
The limits in high-cost areas are then determined based on the average home price for the area. You will find that each county has its own limit, but the ceiling for 2018 is equal to $679,650.
If you happen to buy a home that exceeds the ceiling limit of $679,650, you will be responsible for a down payment of 25% of the difference between the purchase price and the ceiling.
Determining the VA Loan Limits
The VA loan limits change each year based on the Home Price Index published by the Federal Housing Finance Agency. FHFA uses the HPI along with other housing factors to determine the conforming and VA loan limits for the year.
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The HPI and loan limits have a direct relationship. As the HPI increases, so do the loan limits. If we were to see another drop in housing prices as we did during the housing crisis, we would see a decrease in the loan limits as well.
Can you make a down payment on a VA loan?
Yes, you are under no obligation to accept 100% financing. If you want to lower your mortgage payment and/or have some equity in your home, you are free to make a down payment on the loan. This is irrespective of whether or not you are within the VA loan limits or not.
Are the VA loan limits the same for single-family homes and condos?
Yes, the VA loan limits are the same for both single-family homes and condos. The process to get a condo approved for VA financing might be a little harder than a single-family home, but you can borrow the same amount of money.
How does your debt ratio affect your VA loan limits?
The VA allows borrowers to have up to a 41% debt ratio (43% in some cases), which may affect your VA loan limits. Even if you live in a county that allows loans up to $453,100, your personal loan limit might be lower based on your qualifying factors.
Where can you find the loan limits for 2018?
You can view the FHFA’s
here, but only look at the first column titled ‘One-Unit Limit’ for VA loan purposes.
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