A VA home loan with no down payment requirement is one of the main benefits of serving in the armed forces. And veteran homebuyers in 2022 have even more buying power than before.
the median US home price hit $405,000 for the first time last March – a 26.5% increase over two years – according to data from Realtor.com.
To offset rising home values, the Federal Housing Finance Agency (FHFA) recently announced it will increase the 2022 conforming loan limit on home loans supported by the Department of Veterans Affairs (VA). The massive increase brought the old limit up to $647,200, almost an increase of $100,000.
The $647,200 limit applies to most U.S. counties, but can go up to $1 million for some higher-cost areas, according to Mayer Dalal, managing director of Mortgage Bank of California (MBANC), a national lender. This is a steep increase from the conforming loan limit of $548,250 in 2021. However, some service members are not subject to VA loan limits at all.
Here’s what you need to know.
What are VA loan limits and why do they exist?
VA loan limits are set by the Department of Veterans Affairs (VA) and are for the amount it guarantees, not a limit on how much one can borrow. “A guarantee means the VA will back the loan and pay up to 25% of the amount if you default. This backing guarantee makes the VA approved lender much more likely to say yes to a borrower,” adds Dallal.
“Instead, the lender looks at your credit score and debt-to-equity ratio to determine how much you can borrow,” explains Shannon Baronmortgage advisor with lender Florida Funding.
Nevertheless, there are restrictions on the amount of the secured home loan depending on your VA entitlement included in the Certificate of Eligibility (COE).
Close the gap
The Department of Veterans Affairs-sponsored VA loan program has been shown to reduce inequity in the housing market by providing service members with an alternative path to homeownership where they might otherwise be excluded. In 2019, the gap between black and white veteran homeownership rates was 19.6 percentage points, according to a study by mortgage lender Veterans United Home Loans. In the non-military population, this gap was nearly 30 percentage points.
How to Calculate Your 2022 VA Loan Limits
If you are fully eligible, as indicated on your Certificate of Eligibility, a VA loan limit does not apply. You can borrow the maximum amount the lender will approve without down payment, and the Department of Veterans Affairs will guarantee up to 25% of the loan.
The amount you can borrow without a down payment will be lower if you have a reduced PV entitlement and are subject to a loan limit. You will need to know how many VA entitlements you have already used to calculate this figure.
Here’s a step-by-step breakdown you can use to calculate your VA loan limit:
- Write down your current loan amount and the conforming loan limit in your county.
- Multiply your current loan amount by 0.25 to find the amount of VA entitlement you have already used.
- Multiply the conforming loan limit in your county by 0.25 to determine the maximum amount the VA will guarantee.
- Subtract the amount of VA entitlement you have already used from the maximum amount the VA will guarantee.
- Multiply this figure by four to determine your new VA loan limit.
Here is an example using the same steps above:
- You took out a $375,000 VA loan to buy the house you currently live in. You were recently posted elsewhere and want to buy a new home using what’s left of your VA benefit. The conforming loan limit where you are moving is $647,200.
- You have already used $93,750 ($375,000 * 0.25) of the previous PV loan.
- The amount that the VA will guarantee is limited to $161,800 ($647,200 * 0.25).
- The remaining amount of your rights is $68,050 ($161,800-$93,750).
- To calculate the maximum amount you can borrow without making a down payment, multiply the amount of your remaining entitlement by 4. In this case, the loan amount the VA will guarantee is capped at $272,200 ($68,050 * 4).
“An eligible veteran or military member is still free to purchase a more expensive home that exceeds the conforming loan limit with a jumbo loan, but will be required to pay a down payment on the difference and may need to purchase private mortgage insurance” , notes Dalal.
Blue Navy Vietnam Veterans Act 2019
The Blue Navy Vietnam Veterans Act of 2019 service-related extended disability benefits for Vietnam veterans and surviving relatives (in some cases). It also changed the VA home loan benefit for eligible veterans. Here are some of the main changes:
- Access to no down payment on VA-backed loans nationwide, even in higher priced markets
- Eliminating the $80,000 loan limit for veterans who choose to use their VA Native American Direct loan entitlement, which allows veterans to buy or build a home on federal trust land
- Finance Fee Waiver on VA Loans for Disabled Veterans
VA Loan County Loan Limit Explained
Compliant loan limits specify the maximum amount you can borrow to buy a single family home without a down payment. It’s capped at $647,200 in most areas, but some places are designated as high-cost areas and have county loan limits up to 50% higher. You can view the 2022 boundaries for your county by use this resource.