VA loans are a popular mortgage option among military members and veterans in the state of Washington. Our state has a relatively large number of active-duty military, National Guard, reservists, and veterans. So, there are a lot of people who can benefit from this program.
VA loans also generate a lot of questions among borrowers, especially when it comes to the maximum amount they can borrow. Especially given today’s high home prices, many might be asking themselves, “What’s the most I can borrow for a VA loan in Washington State?” Today, we will address one of these frequently asked questions:
What’s the most I can borrow for a VA loan in Washington?
How Does a VA Loan Work?
VA home loans work slightly differently than conventional mortgages. Contrary to what some may believe, the Department of Veterans Affairs (VA) doesn’t originate mortgages. Instead, this government entity backs part of each loan against default. This reduces the risk for lenders, giving them more confidence to provide VA loans with zero down payment and more favorable rates and terms.
In terms of loan amounts, the Department of Veterans Affairs does not limit borrowers to a specific loan size. Instead, they leave it up to the mortgage lender to determine the maximum loan amount. Banks and lenders make this determination by evaluating the borrower’s income and debt situation.
How Much Can I Borrow With a VA Loan in Washington State?
VA loans are a type of government-backed mortgage. While the actual money comes from a lender in the private sector, the federal government guarantees the loan to protect the lender from losses, as mentioned. Not only does this lower the lender’s risk, but this government backing also allows lenders to offer flexible qualification criteria relating to credit scores, debt ratios, and other factors.
This program also allows borrowers to finance 100% of the purchase price. This means you could use a VA loan to buy a home in Washington with no down payment whatsoever. That’s a significant benefit when you consider the typical cost of a home in the state of Washington.
So, what’s the most you can borrow for a VA loan in Washington State?
The amount you’re able to borrow will largely depend on your current income, along with your recurring debts. Mortgage lenders use what’s known as the debt-to-income ratio to determine how much a borrower can take on. The goal here is to ensure that a person does not take on too much debt with the addition of the loan burden.
Your debt-to-income (DTI) ratio is a percentage that shows how much of your gross monthly income goes toward your various debts, including the mortgage payment.
Example: a person’s combined debts (mortgage payment, car payment, credit cards, etc.) add up to $2,100. Their gross monthly income is $5,000. In this example, the person’s DTI ratio would be 42%. They’re using 42% of their gross income to cover their monthly debts.
Mortgage lenders assess this number as a way to measure a borrower’s ability to manage monthly mortgage payments to repay the loaned funds. The higher the DTI ratio, the bigger the risk. That’s because a larger share of a person’s income is going toward paying down existing debt.
On the other hand, a lower DTI ratio means a smaller portion of an individual’s income is dedicated to repaying existing debt, which means there will be more income left over every month.
The Department of Veterans Affairs does not have any specific rules for DTI ratios, but most mortgage lenders set a limit somewhere between 40% and 50%. So, this ratio can determine the most you’re able to borrow using a VA loan in Washington.
Full vs. Remaining Entitlement
There’s another critical aspect to all of this, and it has to do with something known as “entitlement.”
In the context of VA home loans, entitlement refers to the amount of benefits a borrower has at their disposal. Entitlement is essential because it determines how much you can borrow with a VA loan without making a down payment on your purchase.
If you have never used the VA loan program before, you should have full entitlement available to you. (Assuming you meet the basic eligibility requirements for the program.) In that case, there’s no official limit to how much you can borrow toward a home purchase in Washington. It’s entirely up to the lender to determine your maximum loan amount.
On the other hand, if you have diminished or “remaining” entitlement, you can only borrow up to your county’s conforming loan limit without having to make a down payment. These limits are based on median home prices, which means they can vary from one Washington county to the next. You can find your conforming loan limit on the FHFA.gov website.
The remaining entitlement scenarios are confusing. So, let’s simplify it further.
Times When a Down Payment Might Be Needed
With remaining entitlement, a home buyer in Washington using a VA loan can only borrow up to the conforming loan limit—without making a down payment. If you need to borrow an amount that exceeds the conforming loan limit for your county, you will probably have to make a down payment.
Borrowers in this situation usually have to put down a percentage of the difference between (A) their loan amount and (B) the conforming limit for their county.
As it stated on the Department of Veterans Affairs website:
If you’re able and willing to make a down payment, you may be able to borrow more than the county loan limit with a VA-backed loan. Remember, your lender will still need to approve you for a loan.”
Here are the scenarios where a military member or veteran in Washington would have remaining entitlement for a VA loan:
- They have an active VA loan they are still paying back.
- They paid a previous VA loan in full and still own the home.
- They refinanced into a non-VA loan and still own the home.
- They had a short sale or foreclosure on a VA loan and didn’t repay the debt in full.
- They had a deed in lieu of foreclosure on a previous VA loan.
Your Ability to Repay Is What Matters Most
The easiest way to determine how much you can borrow on a VA loan in Washington is to speak with an approved mortgage lender like us. We can review your entitlement status and income situation to determine how much you might be able to borrow.
The most important criterion is that you have sufficient income to manage your monthly payments and all other recurring debts. This is in everyone’s best interest. The last thing you want to do is take on too much debt to the point that it stretches your budget or creates financial hardship.
And that’s where the income qualification process comes into play. By reviewing your debt-to-income ratio and other factors, a mortgage lender can help ensure that you’ll be able to afford your monthly payments going forward comfortably.
How to Get a VA Loan
It’s important to note that there are eligibility requirements for getting a VA loan. There are specific requirements you must meet to be considered an active service member, veteran, National Guard member, or Reserve member. Be sure to refer to the Department of Veterans Affairs to verify that you meet the criteria, which will, in turn, determine your eligibility for a VA loan.
If you’re looking to take out a VA loan to finance a home purchase, this is what you’ll need:
A VA-approved lender. Not all lenders are the same, which is essential to note when you’re considering a VA loan. In this case, it’s essential to choose a lender that has been approved by the Department of Veterans Affairs.
Get a Certificate of Eligibility (COE). This certificate will prove that you meet the minimum standards for VA loan benefits, as well as how much entitlement you’re eligible for. Your lender will help you obtain this critical document.
You can then move on to getting pre-approved for a mortgage, searching for a home with a real estate agent who is well-acquainted with the VA process, and making an offer to eventually close on the deal. Your question, “What’s the most I can borrow for a VA loan in Washington State?” should be answered before you begin the house-hunting process. Knowing the answer to this query will help you focus only on properties that meet your budget
If you’re planning to buy a home in Washington and you wish to use the VA loan program, please contact our staff. We specialize in VA loans and serve borrowers all across Washington and the broader Pacific Northwest.