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Everything You Need to Know About VA Loan Limits
As a benefit of serving in the armed forces of the United States, you may be eligible for home loan assistance with a Veteran’s Assistance (VA) loan. VA loans come with great rates, easier chances of approval, no down payment required and no private mortgage insurance (PMI). As is the case with most benefits, the program was set up with VA loan limits. Until 2020, the max VA loan amount you can apply for depended on what county and what state you live in. As of this year, however, max limits have been lifted, leaving it up to lenders to set limits based on each individual borrower’s situation.
What is a VA loan limit?
VA loans are widely used by former and current servicemen and women across the country every single year. According to a study by Veterans United, over 624,000 veterans and service members utilized their VA loan in the year 2019. Because the benefit is so widely utilized, the program was developed with VA loan maximums that you had to abide by.
The VA loan limit refers to the maximum loan amount under this program. The limit only applies to the mortgage loan size and not to the value of the house. So, if the house you are interested in is higher than the max VA loan amount in your area, you have to cover the remainder with a down payment.
[Read: Best VA Loans]
Loan maximums are set based on the county and state of your intended house. Generally, you will see higher limits in more expensive areas and lower limits in areas with more affordable housing. The rates change annually to reflect changes in the cost of living in certain areas and to move with the inflation rate as it increases or decreases.
The first step to applying to get a VA loan is ensuring that you are eligible. The loan is available under many different conditions to veterans, active service members and even National Guard and Reserve who have served either a six-year contract or 90 days of active duty time (not including TRADOC). Additionally, surviving spouses in most situations are eligible for the VA loan.
To prove that you meet the service requirement, you will need to apply for a Certificate of Eligibility (COE). You can apply for this online through the eBenefits portal.
Currently, there are no minimum credit score or income requirements to get the VA loan. Because the loan is partially backed by the government, lenders are much more willing to extend benefits to people with less-than-great credit because of the reduced risk. Still, the better your credit score and the better your financial picture, the better chance you have of getting approval. Lenders are not required to approve everyone, as you do get most VA loans through a private lender.
How have loan limits changed in 2020?
Major changes came down the pipeline on January 1 for VA loans across the board. According to H.R.299, lenders are no longer required to cap VA loans to the conforming maximums that were used in years past. In simpler terms: The set maximums no longer exist. However, this doesn’t mean that a lender cannot and will not impose its own lending cap. But it does mean that a lender can lend you as much as it feels comfortable with, while still taking advantage of the guarantees that come with the VA loan program.
[More: Best VA Loans for Bad Credit]
Additionally, specific veterans that have been exposed to Agent Orange in Vietnam will be able to get loans without the funding fee. The law also excuses Purple Heart recipients currently serving on active duty from the funding fee. For all others, there are changes to the fees to be expected. For the regular military, the fee is increasing slightly. For National Guardsmen and Reservists, the fee is going down slightly.
When do VA loan limits apply?
As of 2020, VA loan limits no longer apply as H.R. 299 removed this specification. In the past, VA loan limits applied to all loans. Limits were set based on the cost of living and the cost of housing in the area in which you wanted to buy your home. Today, though, all new VA loans are not subject to max VA loan limits. Remember, though, your lender may still impose a limit based on your finances and how much home the lender believes you can afford.
Other things to consider with VA loan limits
Whether you’re subject to a VA loan limit or a limit from your lender, it does not cap the price of the home you can purchase. You are always able to make a larger down payment to bring down the size of your loan. Remember that VA loan limits only apply to the size of the mortgage and not the purchase price of the house.
You aren’t required to put down a down payment with VA loans, but that doesn’t mean it’s a good idea to skip one. If you’re able to put down a down payment, it can save you significantly on the VA home loan funding fee. First-time users of the VA loan who put down no payment (and do not fall under any of the new 2020 exemptions) are subject to a 2.3% VA funding fee. If you put down 5% or more, that drops to 1.65%. If you move up to 10% or more, it goes down even further to 1.4%.
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