How much will it cost with a VA Loan?
This question is at the top of the list for every home buyer. You want to know if you can afford your big purchase and the VA Loan limit.
You ought to have a pretty good idea early in the process before you have your heart set on a particular house.
To find your answer, start with the VA Loan amount. After you know how much you'll borrow, you can work out the monthly payment and the amount of cash you need to close.
You need three numbers before you can figure out your VA Loan amount.
The VA Loan limit
Your VA entitlement
The property value
In this article, I’ll explain these three numbers and how to use them to calculate an accurate loan amount.
The new VA Loan limit
The VA changes the loan limit one time every year to keep pace with the average U.S. home price. The new loan limit is effective on January 1.
For 2019, the national VA Loan limit for mortgages that finance one-to-four unit properties is $484,350.
Loan limits are higher in 199 of the 3,234 counties in the U.S. These high-cost areas are in 20 States and 4 Territories where homes cost more. See if your county has a higher VA Loan limit here: VA Loan limits for high-cost counties for 2019.
I borrowed this map from the Federal Housing Finance Agency so that you can locate the high-cost counties and the loan limit ranges.
How does the VA Loan limit work?
The VA Loan limit is unique because the VA Loan is the only mortgage product with no maximum loan amount.
The limit is a cap on the amount the VA will guarantee, not on the amount you can borrow.
The guarantee is an assurance from the Department of Veterans Affairs to repay the lender if the borrower defaults on the mortgage. To learn more about the VA Guaranty, download a free 16-page summary published by the U.S. Department of Veterans Affairs.
The VA guarantees 25% of the value of the house you buy, up to the loan limit of $484,350. So, if you buy a place for $484,350, the VA guarantees 25%, which is the maximum dollar amount the VA will guarantee - $121,087.
A lender will lend up to 75% of the property value without a guarantee from the VA to limit their risk of losing money if you stop paying the mortgage. 75% of the property value is $363,263.
With a guarantee from the VA, a lender will make you a loan for 75% of the property value plus the amount of the VA Guaranty. $363,263 plus $121,087 equals $484,350.
Using the VA Loan, you can buy a place worth up to $484,350 and make no down payment. But if you buy for more, you need to come up with cash for a down payment because the loan limit caps the VA Guaranty at $121,087.
Your VA entitlement
Entitlement is a credit that the VA awards to each eligible veteran. Your entitlement is worth a specific dollar amount. The amount is equal to 25% of the county’s VA loan limit.
If you buy a house where the loan limit is $484,350, then your VA entitlement is $121,087. If the house is in a high-cost county, then your entitlement is worth more.
Entitlement is not the same thing as a VA Guaranty. Use your entitlement to get a guarantee from the VA.
If you have entitlement available, and you’re ready to buy a house with a VA loan, then exchange your entitlement for a VA Guaranty. Then use your guarantee to increase your loan amount and reduce the amount of cash you need to close.
Check your VA Certificate of Eligibility (COE) to see how much VA entitlement you have available.
Let’s say that a veteran named Emma wants to buy a house in Chicago for $254,866, which is the average VA Loan amount in the U.S.
The property is in Cook County where the VA Loan limit is $484,350. Emma checked her COE to confirm that she has her full $121,087 entitlement available.
She’ll use $63,716 of her entitlement when she buys the house with $57,370 left over. She can use her remaining entitlement to buy another home using a VA Loan in the future.
Getting back to Emma’s home purchase, she applies for a VA loan with a mortgage lender. The lender lends her 75% of the property value plus the amount that the VA will guarantee for Emma.
75% of the property value is $191,149. The VA will guarantee 25% of the property value which is $63,716. The lender approves Emma’s loan for $254,866. She needs no down payment.
The property value
In mortgage lending, the property value is the lesser of the purchase price or the appraised value. The appraised value is a real estate appraiser’s opinion of the value at a specific time - usually the day the appraiser inspects the property.
The property value can affect your VA Loan amount. The appraised value might be more or less than the price you pay for the property. If you buy a house for more than the appraised value, then you will need cash at the closing to pay the difference between the purchase price and the appraised value.
2019 VA Loan Limits
The new VA Loan limits are out. The 2019 loan limit is $484,350 in 94% of the counties in the U.S. You can borrow up to $484,350 when you buy a single family home or a property with 2, 3, or 4 units. The limits are higher in certain high-cost areas of the U.S.
You need more than the loan limit to calculate the exact amount of your VA Loan. You also need to know how much entitlement you have available for your purchase. You can figure that out by checking the Certificate of Eligibility.
The COE will show you if you have enough entitlement to exchange for a VA Guaranty. If you do, then you won’t need a down payment to buy a house - usually. You will need a down payment in some situations, depending on the purchase price of the property you buy.
For example, if you buy a house for more than the loan limit, or if you used your VA entitlement for a prior purchase, or if you pay more than the home is worth then you will need cash for a down payment.
In any case, you can use the formula in this article to calculate an accurate VA Loan amount. If you get stuck, reach out to me. I'm here to make sure you buy your home without a hitch. Likewise, remember to run your numbers in our VA Loan Calculator to see exactly how much it will post you to buy a home with a VA Loan.
In addition, we just published "The Complete Guide to VA Loans," which you can get for absolutely free! It will walk you through all the details about how documentation, benefits, getting approved, and closing on your VA Loan. Click the button below to get your free copy!
Learn more about VA Home Loans