VA Loan Limits
VA lenders approve VA loan applications using established lending guidelines set forth by the Department of Veteran’s Affairs. These requirements are many and address a host of issues ranging from how many pay check stubs to collect to which closing costs veterans are allowed to pay. And while the VA does not specify a specific limit, there are calculations that lenders must follow.
The first approach is to determine the veteran’s home loan entitlement amount, currently $36,000. While the VA does not approve the loan the VA does guarantee 25 percent of any VA loan as long as the loan was approved using VA-eligible guidelines. In this instance, the maximum loan amount is four times $36,000, or $144,000.
For purchases above $144,000, the VA will guarantee 25 percent of the loan amount if the loan does not exceed $417,000. There are other maximum limits that are higher than $417,000 in places that are deemed “high cost” areas with limits up to $625,500. In this fashion, VA loan limits are established by the 25 percent guaranty calculation.
The other method of calculating a VA loan limit addresses affordability. Just because a loan limit might be $417,000 where you live doesn’t mean you qualify for that amount. VA lenders calculate the maximum amount you can borrow based upon your current gross monthly income, current monthly obligations and the new house payment. This figure is arrived at by multiplying your gross monthly income by .41, calculating the new principal and interest payment, adding monthly property tax and insurance premium payments plus additional monthly debt for things such as credit cards or automobile payments for instance.
Once the lender arrives at your maximum qualifying amount, that’s your very own VA loan limit. That can vary a little based upon daily fluctuations in the interest rate market but it’s still all personally yours.