What Is a VA Loan?

A VA loan is a mortgage that is backed by the Department of Veteran Affairs, commonly referred to as the “VA”. VA home loans originated in 1944 as part of the original Servicemen’s Readjustment Act, also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to offer housing and assistance to veterans and their families, making the dream of home ownership a reality for millions of veterans.

How Does a VA Home Loan Work?

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home. The Department of Veteran Affairs guarantees a portion of the home loan. This guarantee acts as an alternative to the traditional down payment, which is typically required to help protect the lender if a borrower defaults on the loan. This guarantee is also known as an entitlement, which works as a substitute for a down payment. 

There are two parts to the VA entitlement: 

• Basic Entitlement: The VA will insure up to 25% of loan amounts up to $144,000 or $36,000, whichever amount is less. Unless you live in a fairly affordable part of the country, you will likely need to use both your basic entitlement and your bonus entitlement. 
• Bonus Entitlement: The VA will insure up to 25% of loan amounts between $144,000 to the current conforming loan limit in your county which is established by the Federal Housing Finance Agency. Bonus entitlements are used when the cost of a home is over $144,000. They also serve as a secondary layer of protection should you default on your mortgage.

What Is the Maximum Amount for a VA Loan?

Generally speaking, the maximum amount for a VA loan varies per each borrower’s circumstances. The VA does not limit the maximum amount you can borrow for a VA home loan. However, there may be a limit on how high of a loan you can qualify for without a down payment. These limits are based on your entitlement: 

Typically, you can borrow up to four times your entitlement amount. When both the basic entitlement and bonus entitlement are utilized, you can qualify for a loan of $484,350, or in some cases, more. While these amounts are standardized, the loan limit and entitlements may be greater in high-cost areas. To determine the maximum amount you can use a VA loan for, you need to look at the 2020 loan limit for the county you plan to purchase in, while considering the above factors.

There is also the Blue Water Navy Vietnam Veterans Act of 2019 to consider, which has authorized changes to VA home loans as of January 1, 2020. Under the Act, qualifying veterans can now purchase a home valued up to $1,500,000 with zero down payment. 

For all qualifying VA home loan applications moving forward, the following will apply: 

•   Maximum $3,000,000 loan amount
•   Minimum 700 FICO for loan amounts greater than $1,000,000
•   Full 25% guarantee from entitlement required
•   Manual underwriting not allowed for loan amounts exceed FHFA conforming

To learn more about this legislation and how it can impact your VA loan, review the VA’s page that covers the changes to benefits.

Keep in mind that if you live in a county with low housing costs and do not need to use the entirety of your entitlement, you can use it toward your next down payment if you sell this home and move. Since VA loan limits change, it can be difficult to be fully informed. Our knowledgeable loan officers can provide further clarification on how VA home loans work.