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The New VA Home Loan – Taking the Mumbo Out of Jumbo Loans

VA Jumbo Loan FAQs

Although we’ll answer questions and clarify the changes around VA jumbo loans, afterward, you should put the term out of your head because they no longer exist. Or, rather, the name doesn’t exist, but a VA loan covering a jumbo amount is still available to Veterans and active-duty military. And that’s what matters.

What is a VA jumbo loan?

Any loan above $548,250, which is the standard VA loan limit in most counties. But local limits can vary, and they can be more in high-dollar markets – think parts of California, Hawaii, and New York City or Boston. In areas like this, a conforming loan can go as high as $822,375 for a single-family property. So, if you’re looking for a home to buy in San Francisco, you’d have to borrow more than $822,375 for the loan to be considered a jumbo.

Why were VA jumbo loans eliminated?

Simply put, in 2019, as part of the Blue Water Navy Vietnam Veterans Act, the president signed into law a bill eliminating the caps on VA loan limits effective on January 1, 2020.

How does eliminating VA jumbo loans help me?

Repealing those limits now allows the Department of Veterans Affairs to back loans exceeding the conforming loan limit. What this means for Veterans and active military personnel is that the top financing benefit available to them just got even better, especially for those in high-cost markets or those who want to purchase more expensive homes.

Jumbo loans used to require a down payment. Does the new rule change that?

Yes, and that’s one of the rewards. Although Veterans and active-duty servicemembers have used VA home loans to purchase properties over the $548,250 loan limit, they were required to put a down payment of 25 percent of the difference between the purchase price and the applicable loan limit. But with the new law in place, loans over the $548,250 loan limit no longer require that hefty down payment. So, in a perfect world, if you meet the eligibility, credit, and income requirements, you can buy a house for a million dollars or more with a zero down payment.

But remember that just because you can doesn’t mean you should.

Other than the loan amount, how does the jumbo loan compare to a standard VA loan?

A loan for more than $548,250 will have a slightly higher interest rate. In addition, some lenders will require a higher credit score. For instance, if a regular VA loan requires a minimum credit score of 620, a jumbo may require a 640 credit score.

Does the new law mean that I can get a jumbo-sized loan from any lender?

No, it does not. Although the United States Department of Veterans Affairs promises to pay your lender up to 25 percent of the loan amount you borrow if you default, the VA doesn’t lend the money directly. Instead, it acts as a cushion for the lender, and that’s why they can offer low interest rates, zero-down payment requirements, and more accessible credit standards.

The new rule means that the VA jumbo loan no longer exists because the updated regulations now allow the VA to guarantee loans of any value, thus limiting the loan amount to what a lender will underwrite.

However, each lender is a privately-owned company that puts together its underwriting conditions. The higher the loan amount, the bigger the risk to the lender. Note that Aligned Mortgage does not impose loan limits.

How do I know if I’m eligible to borrow more than the standard VA loan limit?

About any Veteran or active-duty servicemember is eligible for any type of VA loan if they meet the following requirements:

  • Served at least 90 days during wartime or at least 181 days during peacetime.
  • You may still be eligible if you have less than the service amount above but were discharged for medical reasons or a service-connected disability.
  • A Veteran cannot have a dishonorable discharge.
  • Surviving spouses of Veterans who lost their lives while serving or due to their time in the service may be eligible.
  • A reservist who has served for six years may be eligible.

Note that being eligible is different from qualifying for any loan type. You must also meet the lending requirements. For example, you must meet the credit score requirement and have an income to afford the mortgage and other debts.

Under the new rule, do VA limitless loans require PMI?

No. Another major perk of VA Home Loans is that they don’t require private mortgage insurance (PMI). The new rule doesn’t change that.

What is full entitlement, and how does it affect my getting a VA loan?

Every Veteran who’s eligible for a VA mortgage has a certain level of entitlement — a dollar amount that the Department of Veterans Affairs will repay a lender if you fail to make your payments. In other words, entitlement is the amount the VA will guarantee in your name. Full entitlement means that you never used your VA entitlement (took out a VA Home Loan), or if you did, you paid the loan off in full and sold the property. If you are using your VA loan for the first time, there is no limit on the amount of loan you can get — as long as you can prove that you can afford it, naturally.

The VA splits entitlement into two parts — basic and bonus:

  • Basic entitlement of $36,000. The VA guarantees a quarter of the total loan amount, so basic entitlement for most borrowers means a loan amount of $144,000. Because most borrowers want to purchase a home higher than this, the VA added a bonus or secondary entitlement.
  • Bonus entitlement. This entitlement varies depending on where you’re buying. But the VA will guarantee up to a quarter of the conforming loan limit in your county. For instance, if the limit is $548,250, then divide that by four, which comes to $137.062. Subtract your basic entitlement, $36,000 and your bonus entitlement is $102,062.

Don’t forget that your Certificate of Eligibility (COE), which you’ll need when you start looking for a loan, should show your basic entitlement amount if you don’t currently have a VA loan. Then, of course, you’ll need to calculate your bonus entitlement based on your county’s loan limits and the home you’re purchasing. But don’t worry if it sounds complicated because, at Aligned Mortgage, one of our many experienced home loan specialists can pull your COE and help you with the numbers.

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