Good news for eligible VA loan applicants: loan limits for VA loans are eliminated. This gives borrowers more leeway in terms of the loan amounts they take out without having to put any money down.
Every year, the VA loan limit amounts are established in response to an increase in home prices. Every county would have its own loan limit applied to reflect local housing prices, which would give buyers more wiggle room in order to avoid going over loan limits when buying more expensive houses.
But this year, things are different. Veterans who are eligible for VA loans no longer have to be restricted to maximum VA loan limit amounts. This is great news for those who are looking to buy a house in a more expensive market in Washington, like Seattle, Redmond, or Bellevue. Instead, they can take out what would normally be considered a “jumbo loan” without having to put a down payment towards their purchase.
As per the Blue Water Navy Vietnam Veterans Act of 2019, VA loan limits are eliminated going forward. Prior to this ruling, veterans who went over the loan limit in their area would have to pay a 25% down payment on the amount exceeding the loan limit. Today, that is no longer the case.
There is a caveat, however. In order for borrowers to avoid this down payment, they must still meet typical lending criteria, including having a decent credit score and income level. Lenders can choose to reject a loan application if they feel the borrower is too risky.
Further, veterans who already have more than one VA loan on the go and have missed payments on a VA loan in the past that forced them to default may still be required to make a down payment on loans over a certain amount.
Technically speaking, the VA limits do not put a cap on how much you can borrow. It’s possible to borrow more, as long as the borrower has sufficient income to repay the debt.
As it states on the Department of Veterans Affairs website:
“VA does not set a cap on how much you can borrow to finance your home. However, there are limits on the amount of liability [the department] can assume, which usually affects the amount of money an institution will lend you. The loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a down payment.”
The website also says:
“Veterans seeking to obtain what are commonly referred to as “jumbo” loans, or Veterans living in higher-cost markets, will no longer be subject to the Federally-established conforming loan limit maximums.”
This is obviously good news for veterans who want to take out a VA loan and want to avoid making a down payment. But, as already mentioned they still must prove their creditworthiness and income level to their lenders, who may still require that a certain loan limit is not exceeded before they agree to extend a loan.
Veterans who are eligible for a VA loan may have more flexibility and buying power when it comes to purchasing a more expensive home and taking out a larger loan in 2021 thanks to the elimination of the loan limits. But they will also have to pay slightly higher funding fees this year.
The amount that is required to be paid will depend on the amount of the down payment and whether or not a VA loan has ever been taken out in the past. Borrowers may choose to pay this fee upfront or roll it into the cost of their mortgage.
These fees are classified based on “first-use” and “subsequent-use” VA loan applicants. The former will be charged a VA funding fee of 2.3%, while the latter will now pay a fee of 3.6%.
The fees for anyone who pays at least 5% as a down payment are now 1.65% for both first-use and subsequent-use loan applicants. The fees dip down to 1.4% for those who put down 10% or more.
Are you ready to apply for a VA loan in Washington to finance a home purchase? If so, Sammamish Mortgage is ready to help! We have been providing many different mortgage programs to borrowers in Washington State, as well as all of the Pacific Northwest region, including Colorado, Idaho, and Oregon. We are a family-run business that has been striving to help borrowers realize their dreams of owning a home since 1992. Contact us today if you have questions about applying for a mortgage.
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