The VA loan program has approval guidelines that are similar if not exactly the same as other mortgage programs while at the same time having its own suite of unique requirements. From credit to income to assets, VA loans have specific rules that VA lenders must follow when underwriting a VA loan application in order to receive the special VA home loan guarantee from the VA. There is also another requirement and it refers to the maximum loan amount as prescribed by the VA. And there are three basic methods to calculate a maximum allowable loan.
The VA guarantees 25 percent of the loan amount up to four times the outstanding entitlement available. If the veteran has never used the VA home loan benefit, the entitlement is $36,000 for a maximum loan amount of $144,000. As well, for loan amounts above that, the VA will provide a guarantee as long as the does not exceed $417,000. In certain high cost areas, this limit is increased to $625,500 or even more than $1 million in just a very few places.
The next loan limit concerns any remaining entitlement the veteran may have left over when financing a property. Say the sales price is $100,000, the guarantee is $25,000 leaving $11,000 left over from the original entitlement amount of $36,000. Four times $11,000 is $44,000. A borrower will be hard pressed to find a primary residence at such a low price but if the veteran chooses a zero down VA loan, that’s the limit in this example.
Finally, the maximum VA loan is determined by the borrowers’ debt to income ratios. The debt ratio established by the VA requires the total monthly debt, including the new mortgage payment, not exceed 41 percent of the borrower’s gross monthly income.