For those looking for a new home, and hoping to use a VA loan to finance it, questions about how much you’re able to borrow on a VA-guaranteed loan have probably arisen. You may be wondering about the maximum entitlement that you have, as well as what your interest rate and monthly payment would be at that maximum, so you know whether you could afford it. It may surprise you to find out that there is no national “standard” about how much you can borrow on a VA loan. The amount you can borrow depends a lot on the county you live in. The VA posts a list every year of the loan limits for each county in the United States. If your county is not on this list, it has a maximum of $417,000 that can be borrowed. That list can be found here: http://benefits.va.gov/homeloans/documents/docs/2013_county_loan_limits.pdf
As you can see from that list, there are several places that have over a million dollars that can be borrowed using a VA loan. A lot of places have maximums in the $600,000 and $800,000 range, but the lowest amount a county can have as its maximum is $417,000. While having higher loan amounts is great, if you think about paying off $800,000 with 4.5% annual interest over 30 years, you’re looking at over $4,000 for your monthly payment, which is far more expensive than most people can afford. In the great majority of places, very decent living accommodations can be purchased for under the $417,000 maximum that many counties have. But, if you’re a veteran and a successful business owner or well-to-do executive, getting a VA loan to purchase the big house on the hill is a much better deal than getting a conventional loan to do so.
It is good to know that even the numbers on that list are flexible based on other factors. Let’s say you find a house for $416,000, and you fall in love with it and want to buy it. The good news is, it falls under the maximum amount for your county, so you get the ball rolling and even sign an agreement to purchase with the seller. Then the VA appraiser comes and appraises the home, and says that the fair value of the home is only $350,000. Guess what? You will not be approved for a dime more than $350,000, even if the seller won’t budge on the price and you strongly disagree with the appraiser. There is an appeal process if you think there were errors on the appraisal, but if the appraisal stands then you will not be approved for the higher amount, even though it is under the “maximum” amount that can be borrowed in your county.
Unfortunately, it doesn’t work the other way around. If you’re in a county where the limit is $417,000, and you want to buy a home at $500,000, even if the appraiser were to establish $500,000 as the fair market value, you still could not be approved over the $417,000 limit. The VA will only approve the lower value between the county limit and appraised value of the home. This can cause consternation, especially when the appraised value of the home isn’t that much higher than the county loan limit. However, in these situations, all hope is not lost. In the event that the borrower wishes to buy a home that is more expensive than the county loan limit in which the home is, the borrower can make up the difference in their down payment.
One of the great things about the VA loan program is that VA loans do not require a down payment at all. If you don’t make a down payment or make a small one, you’ll pay a larger funding fee to the VA and have a larger monthly payment throughout the mortgage because you’re paying off more principal, but it can be a great option for those who don’t have enough money saved up for a down payment to still be able to get the home they want and need. But paying a down payment to get the loan amount low enough to be under the county limit can be a great way to get the home you really want. As always, it’s wise to get a lender involved as soon as possible in your house hunting so fewer things catch you by surprise and you can make the best decision for your budget in the long run.