The Department of Veteran Affairs makes homeownership more attainable for military veterans, active service members, and their spouses. However, the program has some limits. A VA home loan isn’t the best choice if you want to buy a $5 million property. However, it will be enough for most people. This guide will explore various VA loan limits, why they exist, and how to qualify for a VA loan.
What are Loan Limits?
Loan limits are the maximum balance you can carry on a loan. These loan limits impact which houses you can buy with a VA home loan. If you want to buy a home that has a higher value than the VA home loan limit, you will have to make a higher down payment or use a different financial product.
Understanding VA Loan Limits for 2024
VA loan limits periodically change and act as a budget for homeowners. Here’s how they work.
Overview of VA Loan Limits
VA loan limits allow the Department of Veteran Affairs to minimize risk when allowing lenders to give out VA loans. These limits vary for each location. Areas with higher costs of living tend to have higher VA loan limits than more affordable areas.
Key Changes in 2024
Most U.S. counties have a $766,550 VA loan limit, which is higher than the $726,200 limit in 2023. Areas with higher costs of living have VA loan limits as high as $1,149,825 for a single-family home. That’s also an upgrade compared to last year.
Factors Affecting Loan Limits
Several components impact the VA home loan limit in your area. These are the factors to keep in mind.
Regional Housing Prices
Areas with lower regional housing prices will have the $766,500 limit applied to VA loans. Areas with higher housing prices may have limits as high as $1,149,825.
Economic Indicators
Rising inflation will push up the VA loan limits. The Department of Veteran Affairs assesses inflation and other factors when deciding to raise limits the following year.
Legislation and Policy Changes
Any policy changes can play a role in future VA home loan limits. Some of these policies can have an immediate impact, while others may take a few years to impact loan limits.
Calculation of VA Loan Limits
Wondering how much you can borrow from a VA lender? Here’s how you can determine your VA loan limit.
Basic Entitlement
The basic entitlement is the amount a veteran can borrow before requiring a down payment. This amount is either $36,000 or 25% of the loan amount up to the conforming loan limit. You still have to conform to loan limits, but entitlement reflects the limit of how much you can borrow before a down payment becomes necessary.
Bonus Entitlement
Bonus entitlement is an add-on; you can use up basic entitlement once you take out a VA loan that exceeds $144,400. It’s the amount of entitlement that is unused.
How to Calculate Your VA Loan Limit
Your VA loan limit depends on where you live, but the amount you can borrow without making a down payment depends on other factors. You’ll first have to determine the VA loan amount. For this example, we will assume that a borrower takes out a $400,000 VA loan.
The amount of entitlement you have used is equal to one-quarter of the loan’s balance. A borrower taking out a $400,000 VA loan has used $100,000 of entitlement that doesn’t require a down payment.
To find your remaining entitlement, you will need two numbers: the amount you have already used and the maximum VA guarantee amount. We already arrived at the amount the borrower used ($100,000). Taking one-fourth of the conforming loan limit in the borrower’s area results in the maximum VA guarantee amount. Here’s the calculation:
Maximum VA guarantee amount = Conforming loan amount x 0.25
Maximum VA guarantee amount = $766,550 x 0.25 = $191,637.50
You’ll have to deduct this number from the entitlement that you have used. Here’s the calculation for this example:
$191,627.50 – $100,000 = $91,627.50.
Multiplying this number by four reveals how much you can borrow without making a down payment.
$91,627.50 x 4 = $366,510
It’s a little short of the $400,000 VA home loan, so you will have to make a down payment. The minimum down payment is the difference between 25% of the loan’s value and your maximum entitlement. Here’s the calculation:
$400,000 x 0.25 = $100,000
Minimum down payment = $100,000 – $91,627.50 = $8,372.50
Regional VA Loan Limits for 2024
The regional VA loan limits vary for each region, but there are two categories: high-cost and standard areas.
High-Cost Areas
There’s more variety within these areas, but the maximum VA loan limit is $1,149,825.
Standard Areas
The VA loan limit in standard areas is $766,550.
Why the Difference Between Regions?
The differences in these regions reflect the differences in the cost of living. Areas with higher costs of living tend to have higher-paying jobs and properties with higher prices. A $500,000 VA loan won’t get you as much mileage in a high-cost-of-living area compared to a standard area. The Department of Veteran Affairs attempts to level the playing field by establishing higher limits for areas with more expensive properties.
Benefits of Higher VA Loan Limits
Higher VA loan limits benefit homeowners. These are some of the advantages.
Increased Purchasing Power
A higher limit allows borrowers to access more capital from the VA program when they want to buy a home. Additional capital increases the selection and can enable borrowers to purchase their dream homes instead of settling for a smaller property that doesn’t fulfill their criteria.
Ability to Refinance at Higher Limits
Higher VA loan limits also help with refinancing, as you can tap into more of your home equity through a cash-out refinance. You won’t have to worry about private mortgage insurance if your equity position falls below 20%, and a higher ceiling lets you take out more money.
Impact on Veterans and Active Service Members
Higher VA loan limits help veterans and active service members afford bigger houses. The program does not have any private mortgage insurance, and it is possible to get a property without putting any money down. Higher limits are beneficial for veterans and active service members, but you still have to qualify for a VA loan. Each lender has different requirements, and a higher limit does not guarantee that a lender will give you the maximum loan amount in your area.
How to Qualify for a VA Loan in 2024
You will have to present a Certificate of Eligibility (COE) to be eligible for a VA home loan. This document is a starting point, and lenders will assess your financials to determine if you qualify. Most VA loan providers will look at your credit score and debt-to-income ratio to see if you can pay back the loan. If you have a FICO score of 620 or higher and a DTI ratio that’s below 41%, you should have a good chance of getting approved. Some lenders work with borrowers who have DTI ratios as high as 50%.
If you’re in or have been in any branch of the military, in your 20s and 30s, and are looking for a home close to military bases, then be sure to reach out to The Federal Savings Bank. With their expertise in VA loans, they can guide you through the qualification process and help you secure the financing you need to purchase your dream home in 2024.
Don’t let the fear of not qualifying for a VA loan hold you back from achieving your dream of homeownership. Visit their website to learn more about their VA loan options and see if you qualify for a VA loan. With The Federal Savings Bank by your side, you can rest assured that you are in good hands.
Frequently Asked Questions (FAQ) About VA Loan Limits
If the home price exceeds the VA loan limit, you will have to make a sufficient down payment to get the VA loan balance below the limit. Otherwise, you can use another financial product to buy the home.
While anything is possible, VA loan limits rarely change in the middle of the year. The Department of Veteran Affairs usually updates the limit at the end of the year.
The loan limit affects what type of property first-time buyers can obtain with VA loans. Higher limits give homebuyers more flexibility with which homes they can buy.
