With VA home loans as with other mortgage programs, there are guidelines and there are requirements. Guidelines are issued by the VA that approved VA lenders follow but do have some flexibility. A good example of a VA guideline relates to debt to income ratios, or simply “debt ratios.”
Debt ratios are expressed as a percentage and compare mortgage costs including principal and interest payments, property taxes and insurance in addition to other monthly credit obligations like credit card payments, car loans, and student loans.
By adding up this total monthly debt, it is then compared with the gross monthly income of all those on the VA home loan application. The VA guideline for debt ratios is 41. If total monthly debt adds up to $4,100 and gross monthly income is $10,000, the debt ratio is 41, for instance. But if the debt ratio were higher, say at 43 or 44, that doesn’t automatically disqualify the borrower.
The lender or bank may still approve the loan based on other positive factors in the loan file. However, core requirements do not have such a variance. VA loans require the borrowers to keep the property insured and taxes paid. VA loans require the borrowers to occupy the property as a primary residence. There are other requirements as well, including the maximum amount the VA will guarantee with a no down payment.
VA loans do come with a guarantee to the mortgage company. Should a VA loan ever go into default and the lender used proper VA guidelines when approving the loan, the lender is compensated at 25% of the loss. VA loans however rarely go into default and are some of the highest-performing loan types in the marketplace today.
This guarantee is funded by what’s called a Funding Fee. For most Veterans, the funding fee is 2.3% of the loan amount of the home using a 30 year, 100% financing. The funding fee is not paid for out of pocket however but is rolled into the loan amount.
2023 VA Loan Limits – High Balance Jumbo:
The VA maximum loan limit is set each year by mortgage giants Fannie Mae and Freddie Mac. The current conforming loan limit in 2023 is $726,200 for most U.S. locations, except the high-cost locations detailed below. Any loan amount above that figure is labeled a “VA jumbo” loan (see below)
Okay, so if the VA mirrors Fannie Mae and Freddie Mac, how do Fannie and Freddie set loan limits each year? Back in 2008, Congress passed the Home Equity Recovery Act, or HERA, which among other important changes to the housing industry established a system whereby the Federal Housing Finance Agency, also as a result of HERA passing, would establish conforming loan limits each year. Under the new guidelines, FHFA compares the median home values in October and compares them with median home values for the same period one year ago.
If home values increase by a certain percentage, the conforming loan limit would increase by the same amount. HERA also established there would be no decreases in the conforming loan limit should median home values fall. That’s why the previous loan limits stayed where they did for so long. When Fannie and Freddie’s limits increase, VA loan limits follow in lockstep.
High Balance Limits:
What about in areas where the median home values are much higher compared to the rest of the country? Doesn’t that harm the housing market when interest rates are higher because they’re jumbo loans simply due to the fact the area is deemed “high cost?” Actually, the VA does address this issue of higher-cost housing areas and again, follows Fannie and Freddie.
There are higher cost areas in various spots around the country and today the high balance VA loan is set at $1,089,300 which is the high balance limit established for Fannie and Freddie loans. Counties in Florida, California, Colorado, Virginia, DC, and others where home values are much higher compared to other parts of the country have conforming loan limits higher than the $726,200 mark and can vary county by county.
This means VA-eligible borrowers in these areas can still obtain a zero down VA home loan and borrow up to $1,089,300 in these areas. High-balance loans can have slightly higher rates compared to a conforming limit of $726,200 in other parts of the country but still be more competitive than what a jumbo loan would require.
VA Jumbo Loan:
Borrowers can still use the VA home loan benefit to buy and finance a home even if the sales price is much more than what the VA limits allow for both conforming and high balance. The lender approving a VA jumbo loan still receives a guarantee on the approved mortgage for borrowers with full entitlement. The best part is normal VA loan rates will still apply.
VA Jumbo 100% financing is available for loans up to $2mil. In addition, higher loan amounts, up to $4mil are available with a small down payment. Veterans with full entitlement, please see the Jumbo Purchase page to learn more about all the requirements.
There is only one form of mortgage insurance associated with the VA loan program, the funding fee, and it is rolled into the final loan amount. There is no monthly mortgage insurance (PMI) payment which keeps the payments as low as possible, increasing the veteran’s borrowing power.
VA mortgage rates are also extremely competitive as well. If you’re considering a property located in an area considered high cost or you want to use your VA home loan benefit to finance a home that needs jumbo financing, there really isn’t anything in the mortgage marketplace that can compete with the VA high balance and jumbo option.
VA Jumbo Loan Advantage:
- 100% financing up to $2,000,000 loan amounts. Higher loan up to $4mil available.
- NO PMI or mortgage insurance
- Single loan program, no piggyback or second mortgage
- Temporary mortgage interest rate buydown available. 2/1 or 3/2/1 options and can be paid by the home seller. This is a great option for buyers to combat the increase in rates over the last year. Learn more about interest rate buydowns here.
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