What is VA Loan?
A VA loan is a specialized mortgage program designed to assist eligible individuals, including active-duty service members, veterans, reservists, and qualified surviving spouses of military personnel who have sacrificed their lives or suffered service-related injuries. These loans are either directly provided by the government or are backed by the Department of Veterans Affairs (VA).
There are various types of VA loans, each offering unique advantages:
- Purchase: VA loans allow borrowers to purchase or construct a home without the necessity of a down payment in many cases. JustFunded Mortgage, for instance, requires completed home construction before closing.
- Refinance: Individuals with different loan types, such as conventional or FHA, can refinance into a VA loan. VA loans are exceptional in that they permit borrowers to convert 100% of their equity into cash.
- VA Streamline: A VA Streamline is a refinancing option tailored to lower the interest rate and modify the loan term on an existing VA loan. The key benefit is the ability to refinance and reduce interest rates and monthly payments, even if the home’s value is less than the mortgage balance. Additionally, there’s a reduced funding fee, and an appraisal may not be required. This is also known as an Interest Rate Reduction Refinance Loan (IRRRL).
- VA Jumbo: When loan amounts exceed conventional conforming loan limits, lenders offer VA jumbo loans. At JustFunded Mortgage, VA jumbo loans can reach up to $2 million, with some loans up to $1.5 million not requiring a down payment.
- Native American Direct Loan (NADL): These loans are issued directly by the VA to eligible Native American service members and veterans for homes located on tribal land. Interest rates for NADLs currently start at 2.75% for a 30-year fixed mortgage.
To qualify for a VA loan, there are specific requirements to consider:
- Certificate of Eligibility (COE): This certificate, issued by the VA, confirms that you meet the minimum service requirements for a VA loan. Depending on your service status, you’ll need either your DD214 or a statement of service. Surviving spouses have different documentation requirements, and if you lack a COE, JustFunded Mortgage can assist in obtaining one.
- Credit Score: While the VA does not set strict minimum credit score standards, individual lenders may have their own guidelines. JustFunded Mortgage typically requires a minimum median FICO® Score of 580, though this requirement can vary based on other factors associated with your loan.
- Debt-to-Income Ratio (DTI): Your DTI ratio compares your monthly installment and revolving debt payments to your gross monthly income, represented as a percentage. With a fixed-rate VA loan from JustFunded Mortgage, your DTI can be as high as 60%.
- Occupancy: The home financed through a VA loan must be your primary residence.
A VA loan offers numerous benefits and is an excellent option for eligible service members and veterans looking to purchase a home or refinance their existing mortgage. If you are interested in a VA loan, you can explore your eligibility and options with JustFunded Mortgage to find out what you qualify for.
What is VA Loan Limit?
In addition to the various types of VA loans and their eligibility requirements, it’s important to understand the concept of mortgage and VA loan limits. Unlike some other mortgage programs, VA loans don’t have strict loan limits in the traditional sense. Instead, they are characterized by how much the VA is willing to guarantee. The VA will guarantee up to 25% of the loan amount for lenders, providing them with added security in case the borrower defaults on the loan.
For borrowers with full entitlement, which is often the case for many VA loan applicants, there is effectively no loan limit. This means that the VA will back 25% of whatever loan amount a lender is willing to approve you for, often allowing you to finance the entire purchase price of your home without needing a down payment.
In 2023, VA loan limits are determined based on various factors, including your VA entitlement and the location of the property you want to purchase. Here’s how VA loan limits work:
- No Specific Loan Limits: Technically, there are no set limits to VA loans. Instead, there are limits to how much the VA will guarantee. The VA guarantees up to 25% of the loan amount for lenders in case you default on your loan.
- Full Entitlement: Most people getting a VA loan have what’s called “full entitlement.” With full entitlement, there is no specific loan limit. The VA will guarantee 25% of whatever amount a lender is willing to approve you for. You have full entitlement under these scenarios:
- You’ve never used your VA loan entitlement before.
- You used your entitlement to buy or refinance a property previously, but you’ve sold and fully paid off your VA loan.
- You had a previous VA loan that wasn’t fully paid off due to foreclosure or a short sale, but you’ve since fully repaid the VA.
- You paid off a VA loan without selling the property, and you can have your entitlement restored once.
- Remaining Entitlement: If your Certificate of Eligibility (COE) states that you have an entitlement greater than zero but less than $36,000, you have remaining entitlement (also known as impacted entitlement). In this case, you are subject to a loan limit if you want to buy a home without making a down payment.
- Bonus Entitlement: The VA recognizes the concept of bonus entitlement. While the standard basic entitlement is $36,000 (assuming an average home price of $144,000), this figure isn’t really limiting due to higher home prices in most areas. Bonus entitlement comes into play if your COE shows a higher entitlement amount.
- Loan Limit Calculation: In areas where loan limits apply, the VA relies on equations that take into account conforming loan limits established for conventional loans. These limits depend on your location and the number of units in the home you intend to buy. The standard conventional limit for a 1-unit property in 2023, outside of high-cost counties, Alaska, or Hawaii, is $726,200.
In summary, VA loan limits in 2023 can vary based on your entitlement and the property’s location. Full entitlement holders generally have no specific loan limit, while those with remaining entitlement or impacted entitlement may be subject to loan limits if they want to purchase a home without making a down payment. The exact loan limit will depend on your specific circumstances and the equations used by the VA for loan limit calculations.
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