2015 welcomed several changes in mortgage lending and VA loans were no stranger. Congress didn’t pass a bill last year that would have extended the pretzel-logic that calculated maximum VA loan limits in high cost areas. If someone wanted a VA loan in such an area the zero down feature was still available. Yet the maximum VA limit for 2015 is simply $625,500 for those regions. Otherwise, most of the country sees a $417,000 limit, the same issued for conventional loans. And while buying and financing a home with zero down in a high cost area might not always be the best choice, it’s time to revisit how VA lenders allow for a VA loan to be used when the loan is greater than typically allowed.
The VA will guarantee 25 percent of a VA loan up to $417,000 or higher if the property is located in a high cost area. For loans above the limit, borrowers can still utilize the VA loan by coming to the closing table with 25 percent of the difference between the maximum allowed and the sales price. That’s quite a mouthful so let’s explain it a little further.
Say the limit is $417,000 and the sales price is $500,000. The loan isn’t eligible for a no down payment VA loan due to its size. But a VA loan may still be used if the borrowers come up with a down payment equal to 25 percent of $500,000 – $417,000, or $20,750. That amount in this example works to a down payment of just over 4.00 percent, much less than the 20 percent down most jumbo mortgages require. Plus, there is no monthly mortgage insurance payment associated with loans with a down payment less than 20 percent of the sales price. Yes, there is the funding fee but that amount is rolled into the loan amount and not paid from the borrower’s own funds.
VA jumbo limits have changed for 2015 yet there are still attractive options for those who qualify. A much lower down payment, competitive rates and no monthly mortgage insurance premium. Not a bad package.