Qualifying for a VA Loan Amount in Excess of the County Loan Limit

VA loan amount limits can be confusing. The VA actually doesn’t have a maximum amount you can borrow. They have a maximum amount that they will guaranty though. This may translate into a maximum amount you may borrow, but it’s on a lender-by-lender basis.

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The VA Maximum Guaranty

First, let’s look at the VA’s maximum guaranty. The VA guarantees loans for VA-approved lenders. As long as the lender underwrites a loan using the VA guidelines, the VA promises to pay the lender back 25% of the loan that the lender loses if the borrower defaults.

Now because the VA can’t guaranty 100% of every loan written, they have maximum guaranty amounts. Each eligible veteran receives the same amount of guaranty to start. That amount is $453,100. This means the VA will pay lenders a maximum amount of $113,275 in the face of default.

Now, this doesn’t mean that a VA borrower can’t have a higher loan amount than $453,100, though.

The Lender Maximum

Now, the lender may allow you to borrow more than $453,100 if you need to borrow more. Of course, you have to prove that you qualify for the loan. This means that you can prove that you can afford the higher loan amount and your debt ratios still stay in line with what the VA requires.

If the lender does allow you to borrow more, you will have to make a 25% down payment on the difference between the VA guaranty and the purchase price of the home. For example, if you found a home for $550,000, there is a $96,900 difference. The VA will not guarantee this amount. This means if you default, the lender would lose 100% of the $96,900 difference.

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In order to make up for that risk, VA lenders require a 25% downpayment on that amount. In this case, you must pay $24,225 in the form of a down payment. This way the lender gets their 25% ‘guaranty’ and you still get to buy the more expensive home.

What if You Don’t Have Full Entitlement?

Now another problem can occur here. If you’ve already used some of your entitlement and it isn’t eligible for reinstatement, you may have to make a down payment even on a home that costs no more than $453,100.

The amount you must put down depends on how much entitlement you have left. Just like the loans that go above the VA guaranty limit, you would have to make a 25% down payment on the difference between your guaranty and the purchase price of the home.

For example, if you suffered a foreclosure on a $200,000 home 3 years ago, you would lose the entitlement for $200,000. You would still have $253,100 available though. If you found a home after recovering from the foreclosure and waiting the mandatory 2 years for $300,000, you would have to make a down payment on the $46,900. That means an $11,725 down payment.

It’s nice to know that your VA benefits can help you even if you want to buy an expensive home. It saves you on the down payment you would otherwise have to make if you used any other loan program. Just keep in mind that if the purchase price exceeds the standard guaranty of $453,100, you will have to take a down payment on the difference. Luckily, VA loans don’t require mortgage insurance, so you will have that benefit along with the flexible guidelines of the VA loan to use.

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