2023 VA Loan Limits: What You Need To Know

One of the finest advantages offered to Americans who have served or are serving our country abroad and at home is the VA loan. VA loan ceilings are modified annually. This post will discuss when you might have a loan limit and what to anticipate even if they don’t always apply. Let’s explore what VA loans are first before moving on.

A VA Loan is what?
An qualifying active-duty service member, veteran, reserve, or qualified surviving spouse of someone killed in the line of duty or who sustained an injury related to their service may be eligible for a VA loan. These are direct loans from the government, or more frequently, loans supported by the Department of Veterans Affairs.

VA loans come in a variety of forms and offer a wide range of advantages:

Purchase: In many circumstances, VA loans allow borrowers to purchase or construct a home without the requirement of a down payment. Before closing, building on the house must be finished if you’re getting your VA loan from Rocket Mortgage®.

Refinance: You are able to refinance from another loan type (such as a conventional or FHA loan) into a VA loan. Additionally, only VA loans from significant lenders let you turn 100% of your equity into cash.

VA Streamline: A VA Streamline is a refinance that is done to shorten the term and lower the interest rate of an existing VA loan. The main advantage is that even if you owe more on your house than it is worth, you can refinance to lower your interest rate and payment. Additionally, the funding charge is decreased, and an assessment is typically not needed for the loan. The term “interest rate reduction refinance loans” (IRRRLs) may also be used to describe these.

VA Jumbo: Lenders provide VA jumbo loans for loan amounts that exceed conventional conforming loan restrictions. A VA jumbo loan up to $2 million is available from Rocket Mortgage, while loans up to $1.5 million would not require a down payment.

Native American Direct Loans (NADL): These are made directly by the VA to qualified Native American service personnel and veterans for residences on tribal grounds, rather than through any lender. A 30-year fixed mortgage currently has an interest rate starting at 2.75%.
Here are a few things you need to be aware of in order to be eligible for a VA loan:

The VA will offer you a Certificate of Eligibility (COE) as proof that you’ve fulfilled the necessary service criteria and are eligible for a VA loan. You’ll need a DD214 or a statement of service, depending on your level of service. Additionally, there are distinct forms for surviving spouses. Rocket Mortgage can aid you in the procedure if you don’t already have your COE.
Credit score: Although the VA does not establish minimum credit score requirements, lenders may do so. Rocket Mortgage’s minimum FICO® score requirement is 580, though this can change depending on other aspects of your loan.
DTI (debt-to-income ratio) Your DTI ratio compares your monthly gross income to the total of your installment and revolving loan payments, given as a percentage. Your DTI with a VA loan at Rocket Mortgage might be as high as 60% if you have a fixed-rate loan.
Occupancy: The house has to be your main residence.
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VA Loan Caps: The Fundamentals
In theory, VA loans have no restrictions. The VA will only promise a certain amount of money. In the event that you cannot repay your loan, the VA will guarantee up to 25% of the total loan amount for the lenders. Your VA entitlement amount determines how much the VA will guarantee.

VA loan limits can be thought of as the maximum amount you can borrow without putting down any money for this discussion.

The majority of applicants for a VA loan will have what is known as full entitlement. As of 2020, if you are fully entitled, there is no borrowing cap. 25% of whatever a lender is willing to approve you for is guaranteed by the VA.

In any of the following four circumstances, you are fully entitled:

Your eligibility for a VA loan has never been used.
You previously utilized your entitlement to purchase or refinance a home, but you later sold it and paid off your VA loan in full.
You previously had a VA loan, which you have since entirely repaid, but it wasn’t fully paid off due to a foreclosure or short sale.
You repaid a VA debt without having to sell the house. This is a one-time restoration of your entitlement.
You can check your COE if you’re not sure if you are fully entitled. If you have complete entitlement, it will state that your basic entitlement is $36,000. The estimate makes the average home price of $144,000, which hasn’t been the case in much of the nation in a very long time. As a result, the VA has acknowledged the idea of bonus entitlement. Except for the knowledge that the $36,000 amount isn’t actually restrictive, you don’t need to worry about this.

If your COE indicates that you have anything other than zero but less than $36,000, you still have some eligibility but not all of it. A different name for this is impacted entitlement. If that is the case, you cannot purchase a property without a down payment due to a loan cap.

The VA uses formulae (explained below) based on conforming loan restrictions established for conventional loans where loan limits are relevant. The amount of units in the home you’re buying and where you reside both affect these loan limitations. However, outside of high-cost counties, Alaska, or Hawaii, the typical conventional ceiling for a 1-unit property in 2023 is $726,200.

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Limits for VA County Loans
Even while the fundamental national limit frequently applies, VA algorithms also apply greater limits in regions that are regarded as high-cost counties for conventional loans. The region surrounding New York City, for instance, is at the upper limit of traditional lending restrictions. Without switching to a jumbo loan, a 1-unit home can have a mortgage up to $1,089,300.

The majority of lenders, including Rocket Mortgage, utilize county loan limits as the cutoff for a VA Jumbo loan. This is in addition to the question of what your limit is if you have impacted entitlement. In many cases, even if you have full eligibility but no down payment, loan criteria could be stricter. A median FICO® Score of 640 or above is required.

Limits On VA Loans And Mortgages
A VA loan is among the most forgiving options for borrowers with less-than-perfect credit in several areas. For instance, you can obtain a VA loan in as little as two years following a Chapter 7 bankruptcy or a foreclosure. If you’ve already experienced a short sale or foreclosure, you can be required to pay a down payment depending on your maximum entitlement. Your maximum entitlement is equivalent to 25% of your loan limit.

When a person’s entitlement is compromised, the VA will only guarantee up to the smaller of the following amounts for loans over $144,000:

25% of the loan’s total value
The portion of the entitlement that hasn’t been reinstated amounts to 25% of the county loan cap.
Since most lenders, including Rocket Mortgage, won’t approve the loan without a combination of entitlement and a down payment from the borrower equivalent to 25% of the loan amount, the entitlement is important.

With a real-world example, maybe, this will all make more sense. Let’s imagine Kelly has $80,000 in unrestored entitlement but wants to use a VA loan to purchase a $480,000 home. The maximum conforming loan amount in Kelly’s prospective neighborhood is $726,200.

We’ll run both formulae and compare the results to see which yields a lesser monetary amount to determine which entitlement limit applies in Kelly’s case. Let’s start by examining 25% of the loan amount. It totals $120,000 ($480,000 divided by 0.25).

Let’s now examine the second calculation, which is 25% of the county loan limit less the portion of the entitlement that wasn’t reinstated. This equals $101,550 ($726,200 divided by 0.25 and $80,000).

Due to the fact that it is the smaller of the two amounts, the VA promises $101,550.

Keep in mind that lenders prefer that the down payment and entitlement cover 25% of the loan amount. In this instance, Kelly would therefore need to put down $18,450 ($120,000 – $101,550) to qualify for a VA loan.

Kelly might also choose a conventional loan, where the down payment would be $24,000 at 5%, or an FHA loan, where the minimal down payment would just be $16,800 at 3.5%. However, if the affected entitlement was brought about by a previous foreclosure or bankruptcy, qualifying can be a little bit more challenging. An FHA loan, for instance, has a 3-year waiting period for foreclosure while a conventional loan has a 7-year waiting period.

Even though we’ve used purchase-related examples, same entitlement limits also hold true if you’re considering refinancing your VA loan. They might affect how much money you would need to bring for closing charges.