VA loans are available to many veterans who served adequate time in the military. Borrowers who served during wartime only need 90 days of consecutive service to qualify. Those serving after the war or during peacetime, must serve 181 days consecutive days and those in the Reserves need 6 years of service. in addition to the time served, veterans must have an honorable discharge. Once you know you are eligible for the VA loan, though, you need to know the maximum loan amount. The good news is that even if you need a larger loan, there are VA Jumbo loan requirements that make the loan easy to afford.
The VA Loan Basics
First, let’s talk about the required VA down payment. In general, you do not need one. This is a perk of the VA loan. This only applies to loans less than $424,100, though. The VA abides by the national conforming limit, which is where the $424,100 originated. This means the VA will guarantee a loan up to $424,100 for a borrower. With no down payment, flexible credit guidelines, and low closing costs, you can purchase a rather nice house in many areas with this loan.
The VA Guarantee
You should know that the VA guarantees loans – they do not fund them. This means the bank funds the loan. However, the VA does promise to repay the bank should you default on the loan. The VA makes the money to guarantee loans through the funding fee they charge at the onset of the loan. Right now, that amount equals 2.15% of the loan amount. You can roll the fee into your loan if you do not have the money, though. The VA guarantees 25% of your loan amount up to the maximum of $424,100. This means they guarantee up to $106,025.
The VA Jumbo Loan Requirements
What happens if you need a larger loan, though? Is it no longer guaranteed by the VA? The good news is that you can still use your VA benefits on a jumbo loan. The bad news is you might have to put money down on the home. You have to make up the difference between the 25% that the VA covers for standard loan amounts for the amount above and beyond $424,100.
Here’s how it works:
Let’s say you found a home for $510,000. The VA would guarantee $106,025 of that amount or a total loan of $424,100. You then owe 25% of the difference between $510,000 and $424,100. This means you owe 25% of $85,900 or $21,475.
If you compare this to a conventional loan, which usually requires at least 20% of the purchase price down on a home, you would owe $102,000. So even though $21,475 seems like a lot on the VA loan since they do not require a down payment, it is $80,525 less than you would owe on a conventional loan.
Qualifying for a VA Loan
Veterans have the benefit of having simple guidelines to follow for VA loan approval. Like any other loan, you need decent credit, stable income, and stable employment. The VA does not put a lot of emphasis on your debt ratio either. Rather, they look at your monthly disposable income. This means the money you have left over after you pay your monthly bills. The VA wants to make sure veterans have enough to cover their daily living expenses without having to sacrifice. In order to ensure that you have enough money left over, the VA set limits for each area of the country. The VA breaks the country up by the Northeast, Midwest, South, and West. For example, a family of 4 in the Northeast must have $1,025 left over in disposable income each month in order to qualify.
In order to secure a VA loan, whether Jumbo or standard, you must apply for the loan with a VA approved lender. Not every lender can provide VA loans. In addition, not every VA lender will provide a Jumbo loan. The VA Jumbo Loan requirements that the VA sets are not the only guidelines you may have to follow either. Each lender has the ability to create “overlays.” This means additional requirements that the lender wants above and beyond what the VA requires. This helps the lender feel confident about the loans they fund.