If you are a veteran, you can buy a home with no money down. But what is the maximum loan amount the VA allows? Can you buy a million dollar home with your benefit and put no money down?
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The VA does have limits regarding how much you can borrow, but there is a catch. In most counties, veterans can borrow up to $453,100 and put no money down. The VA will
guarantee 25% of the loan amount for the lender. If you default, the lender will receive 25% of the loan amount. This makes it easier for lenders to give risky 100% loans. The 25% guarantee takes the place of the down payment.
What happens if you want to borrow more than $453,100? You’ll have to make a down payment. We discuss your options below.
Exceeding the Maximum Loan Amount
If you decide that you need more than $453,100, you may borrow it. In other words, you can go above the maximum loan amount. In order to do this, though, you’ll have to put down 25% of the difference between the max loan amount and the purchase price. Here’s an example:
You want to buy a home for $500,000. You still have full entitlement, which means you are eligible for a VA loan of up to $453,100 with no down payment. You will have to make a down payment of the difference between $500,000 and $453,100 though. In other words, you must put down $11,725. While this might seem to negate the benefits of the VA loan, that’s a small down payment compared to an FHA loan that would require a down payment of 3.5% of the full amount or $17,500. The
FHA loan would also require you to pay monthly mortgage insurance, which the VA loan doesn’t require.
Of course, whether a lender will lend you more than the maximum loan amount depends on the lender. You may have to shop around to find a willing lender.
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The Exception to the Rule
There is one exception to the maximum loan amount rule. If you live in a high cost county, your loan limits may be higher than $453,100. For example, the
VA loan limit in Los Angeles is $679,650 because the cost of living and the average cost of homes in the county are higher than the average homes in the US. There are more than 100 high cost counties located throughout the US.
If you live in one of the designated high cost counties, you do not have to put a down payment on the home. You can borrow 100% for the full amount as long as you can find a willing lender and you qualify for the loan. In other words, you must prove that you can afford the loan and fall within the VA’s 41% debt ratio guidelines as well as have enough disposable income each month.
Qualifying for a VA Loan
No matter the maximum loan amount in your area, it doesn’t mean you automatically qualify for it. As discussed above, you must prove you have the debt ratio and disposable income to qualify. Lenders will verify your monthly income, credit score, and ability to repay the loan. You’ll also need to prove that you have the entitlement for the loan.
Each veteran starts off with full entitlement. This entitles you to the $453,100 loan, if you qualify for it. If you use some of your entitlement and you don’t pay the loan off in full and sell the home, you cannot reuse that entitlement. Typically, you can only home one home at a time using your VA benefits. There is one exception to the rule, though. If your job or the military relocates you and it’s more than 50 miles from your current home, you may be able to use your remaining entitlement to purchase another home.
Finding the right VA loan means you should shop around and look for a loan. Determine your maximum loan amount based on your location and the amount of entitlement you have left and then you can find the loan with the terms that suit you the most.
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