A VA home loan with no down payment requirement is one of the major perks of serving in the armed forces. And 2022 veteran homebuyers have even more buying power than before.
The median U.S home price reached $405,000 for the first-time this past March — an increase of 26.5% over two years — according to data from Realtor.com.
To compensate for rising home values, the Federal Housing Finance Agency (FHFA) recently announced it will raise the 2022 conforming loan limit on home loans backed by the Department of Veterans Affairs (VA). The massive increase raised the former limit to $647,200 — close to a $100,000 increase.
The $647,200 limit is for most U.S. counties but can reach as high as $1M for some higher-cost areas, says Mayer Dallal, managing director of Mortgage Bank of California (MBANC), a national lender. This is a steep increase from the conforming loan limit of $548,250 in 2021. However, some servicemembers aren’t subject to VA loan limits at all.
Here’s what you need to know.
What Are VA Loan Limits and Why Do They Exist?
VA loan limits are put in place by the Department of Veterans Affairs (VA) and are the amount it guarantees, not a limit on how much one can borrow. “A guarantee means the VA will back the loan, and pay up to 25% of the amount if you default. That backing guarantee makes the VA approved lender far more likely to say yes to a borrower,” Dallal adds.
“Instead, the lender looks at your credit score and debt-to-income ratio to determine how much you’re eligible to borrow,” says Shannon Barron, mortgage advisor with lender Florida Funding.
Closing the Gap
The VA loan program sponsored by the Department of Veterans Affairs has been shown to reduce inequalities in the housing market by offering servicemembers an alternative path to homeownership where they might otherwise be shut out. In 2019, the spread between homeownership rates of Black and White veterans was 19.6 percentage points, according to a study by the mortgage lender Veterans United Home Loans. In the non-military population, that gap was nearly 30 percentage points.
How to Calculate Your 2022 VA Loan Limits
If you have full entitlement, as indicated in your Certificate of Eligibility, a VA loan limit does not apply. You can borrow the maximum amount the lender will approve you for with no down payment, and the Department of Veterans Affairs will guarantee up to 25% of the loan.
The amount you can borrow with no down payment will be lower if you have reduced VA entitlement, and you’re subject to a loan limit. You’ll need to know how much VA entitlement you’ve already used to calculate this figure.
Here’s a step-by-step breakdown you can use to calculate your VA loan limit:
- Write down your current loan amount and the conforming loan limit in your county.
- Multiply your current loan amount by 0.25 to find the amount of VA entitlement you’ve already used.
- Multiply the conforming loan limit in your county by 0.25 to determine the maximum amount the VA will guarantee.
- Subtract the amount of VA entitlement you’ve already used from the maximum amount the VA will guarantee.
- Multiply this figure by four to determine your new VA loan limit.
Here’s an example using the same steps above:
- You took out a VA loan for $375,000 to purchase the home you’re living in right now. You were recently stationed elsewhere and want to purchase a new home using what’s left of your VA benefit. The conforming loan limit where you’re relocating is $647,200.
- You’ve already used $93,750 ($375,000 * 0.25) from the previous VA loan.
- The amount the VA will guarantee is limited to $161,800 ($647,200 * 0.25).
- Your remaining entitlement amount is $68,050 ($161,800 – $93,750).
- To calculate the maximum amount you can borrow without making a down payment, multiply the amount of your remaining entitlement by 4. In this case, the loan amount the VA will guarantee is capped at $272,200 ($68,050 *4).
“An eligible veteran or service member is still free to buy a more expensive house that exceeds the conforming loan limit with a jumbo loan, but they will have to pay a down payment on the difference and may have to buy private mortgage insurance,” notes Dallal.
Blue Water Navy Vietnam Veterans Act of 2019
The Blue Water Navy Vietnam Veterans Act of 2019 extended service-related disability benefits to Vietnam veterans and surviving relatives (in some instances). It also modified the VA Home Loan Benefit for qualifying Veterans. Here are some of the primary changes:
- Access to no down payment on VA-backed loans nationwide, even in higher-priced markets
- The elimination of the $80,000 loan limit for veterans who choose to use their entitlement towards a VA Native American Direct loan, which allows Veterans to buy or build a home on Federal trust land
- Funding fee waivers on VA loans for disabled veterans
VA Loan County Loan Limit Explained
Conforming loan limits specify the maximum amount you can borrow to purchase a single-family one-unit property without a down payment. It’s capped at $647,200 in most areas, but some locations are designated as high-cost areas and have county loan limits of up to 50% higher. You can look up the 2022 limits for your county by using this resource.