More On VA Loan Limits and Down Payments
We’ve had reader questions recently on VA loan limits and down payment requirements, and there’s also a pending update to VA loan maximum guaranty limits for 2013. While at the time of this writing those maximum guaranty amounts have not been made public, it’s only a matter of weeks before they are published.
What is the maximum amount a borrower can apply for with a VA guaranteed loan? A read-through of the VA loan rules shows there is no set dollar amount limit. Instead the maximum loan is based on several factors including the appraised value of the home, the VA maximum loan guaranty for that housing market, and whether the borrower chooses to include the VA loan funding fee in the loan amount.
In a recent blog post we described the rules for VA loan maximums, which are designed to include any allowable add-ons such as the VA loan funding fee and the optional VA Energy Efficient Mortgage which can add more money into the loan for approved upgrades to the property.
Some newcomers to the VA loan program might assume that if they borrow close to or at the VA loan guaranty limit for their county they might be required to make a down payment. But VA loan rules state, “Because VA loans can be for the full reasonable value of the property, no downpayment is required by VA except in the following circumstances:
- If the purchase price exceeds the reasonable value of the property, a downpayment in the amount of the difference must be made in cash from the borrower’s own resources, and
- VA requires a downpayment on all GPMs. (Graduated Payment Mortgages)”
VA Pamphlet 26-7 also adds requirements for those applying for a VA loan when the borrower does not have 100% VA loan entitlement. “If a veteran has less than full entitlement available, a lender may require a downpayment in order to make the veteran a loan that meets GNMA or other secondary market requirements. The “rule of thumb” for GNMA is that the VA guaranty, or a combination of VA guaranty plus downpayment and/or equity, must cover at least 25 percent of the loan.”
Borrowers may also sometimes confuse the terms and conditions of a VA loan with those of an FHA mortgage. FHA loans do require a minimum down payment of 3.5%, but VA loans have no such stipulation. While both programs are government-backed, they are not identical.
Do you have questions about VA home loans? Ask us in the comments section.