You are a veteran with VA loan benefits. You know you have a specific amount of entitlement. Will that amount get you a VA jumbo loan?
Unfortunately, it won’t. The most entitlement any veteran can obtain is enough to cover the maximum conforming amount. Today, that means $424,100. The
VA will guarantee 25% of that amount for lenders. In other words, the VA guarantees $106,025. Veterans are able to secure a loan that is 4 times the maximum guarantee.
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But wait, you can get a jumbo loan with your VA benefits. Keep reading to see how.
Getting a VA Jumbo Loan
Just because the VA guarantees loans up to $424,100, doesn’t mean that is your maximum loan amount. If you qualify, meaning you make enough money and have a low enough debt ratio, you can get a higher loan. You’ll have to put money down on the home, though.
The VA jumbo loan requires borrowers to put down 25% of the difference between the maximum conforming amount and purchase price of the home.
Let’s look at an example:
You want to buy a home worth $525,000. You can get the first $424,100 in a VA loan with no down payment. However, you’ll have to make up the 25% guarantee the VA would provide on the amount that is above and beyond the $424,100.
This means you’ll have to pay 25% of $100,900. This equals $25,225. This makes up for the 25% guarantee the lender would miss out on because the loan exceeds the conforming limit.
Looking at the big picture, this is only a 4.8% down payment. A conventional jumbo loan would require much more than that for a down payment. They often require as much as 20% down on a jumbo loan.
Qualifying for the VA Loan
Now, just because you may be able to get a jumbo VA loan, doesn’t mean you’ll automatically qualify. The VA does have relaxed guidelines, but you still have to qualify.
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Their biggest concern is if you can make the payments comfortably. They don’t put a lot of emphasis on your debt ratio, but it should not exceed 43%. This is more than a VA rule; it’s the maximum debt ratio for a Qualified Mortgage, which all government-backed loans follow. A 43% debt ratio is the maximum borrowers are allowed before they become a higher risk of default.
An area the VA focuses on even more, though, is the disposable income you have at the end of the month. The VA has strict requirements regarding the amount you must have based on where you live and the size of your family. The more family members you have, the more money you need to cover the basic necessities.
The VA believes that families that meet the disposable income requirements are less likely to default on their VA loan. This means you must have enough money left over each month after you pay your mortgage, credit cards, car loans, and student loans. The figure does not take into account utilities, groceries, or any other daily living expenses.
Other than the
disposable income requirements, the VA is pretty flexible. They like a borrower’s credit score to be at least 620, which is low for any loan. They also like you to have a clean credit history and stable income. They don’t have any hard and fast rules regarding what a good borrower looks like, though. Their largest concern is that you can afford the loan.
Things to Consider Before Taking a VA Jumbo Loan
The VA jumbo loan could be a good option if you must borrow more than the conforming amount. VA rates are low compared to other programs and their requirements are flexible. But, before you jump on board, consider the following:
- It will take you a long time before you have very much equity in the home. Even putting down 4.8% like in the above example, you will pay mostly interest for the first few years. You won’t see a return on your investment for a while.
- Your mortgage payments will be quite large. Make sure you can afford them.
- You still have to keep up with your homeowner’s insurance and real estate taxes; it’s a part of the agreement of taking on a mortgage.
- You’ll pay a funding fee. However, since you will put money down on the home, you may pay a reduced amount. Generally, you’ll pay between 1.5% and 2.15%. In our example, this means $7,496 – $10.745.
The VA jumbo loan is a good option for borrowers that can easily afford the payment. Take into consideration the amount of the closing costs as well, though. The funding fee alone can add a significant amount to your closing fees. As is the case with any loan, shop around for the best deal. Each VA approved lender will have a different quote for you. The VA does not regulate the rates or the fees lenders charge. Shopping around will ensure that you get the loan that meets your needs the most.
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