VA Jumbo Loans Explained
06-20-2020 • MHS Lending
One of the most popular misconceptions about the VA Loan is there is a limit on the amount of money you can get. Although there is a limit on the amount that the VA will guarantee or insure, known as the County Loan Limit, there is no set VA rule that says how much of a loan a veteran can get. This is where the jumbo loan comes in.
VA Jumbo loans are loans that allow military members or veterans the ability to purchase a home that is above the County Loan Limit. For these loans, a down payment will be required, but it won’t be for the entire price of the home. In order for banks and lenders to maintain the 25% guarantee the Department of Veterans Affairs offers, you might be required to put down 25% of every dollar that goes over the limit.
How do I determine my limit?
The Department of Veterans Affairs who guarantees VA Loans up to 25% sets a maximum loan limit for borrowers. These limits are determined by two main factors- your entitlement and the location of the property. County loan limits are the limits based on the location of the property you wish to buy.
The exact limit is determined based on the price of homes in the area. It will generally be higher in areas with more expensive properties. The county loan limit does not mean it is the maximum amount you can borrow- it just means this is the maximum amount the government will guarantee. If you’re looking to stay at a $0 down payment, you’ll need to look for homes less than or equal to your county loan limit.
Jumbo loan requirements
VA Jumbo Loans are a great way to get into a more expensive property for significantly less money at closing. Jumbo loans are offered by a lender when the home price exceeds the VA loan limit. Requirements for this loan are similar to that of a traditional VA Loan. Service requirements will be the same, but income and credit requirements may be stricter. Since the price of the property is higher this increases the risk to the lender or bank.
Borrowers will likely need more cash on hand for the sale in order to cover the down payment on the cost above the limit. Lenders who work with the VA loans often are well versed on how to approach jumbo loans and can lead buyers to well-informed homebuying decisions. VA jumbo loans offer incredible buying opportunities for those qualified borrowers.
How do jumbo loans work?
Say a buyer wants a home that is $500,000 but the County Loan Limit is $400,000. The difference is $100,000 and that is what the down payment is calculated off of. The borrower will need to come up with 25% of the $100,000 only since the government guarantees the $400,000. The 25% that the borrower needs is $25,000 and that covers the entire down payment for that home. This is significantly less than that of a conventional loan.
VA jumbo loans are ideal for buyers who want to take advantage of hard-earned military benefits and buy a more expensive home for less money up front. With jumbo loans you can reap the benefits of the VA Loan and pay just a fraction of what a traditional down payment would be. They are perfect for buyers who want to access more homes in high-cost areas and can afford to pay the difference.
Awesome example of how a VA Jumbo Loan can help
John and his family were looking for their dream home near the base in sunny San Diego. The housing market there is extremely high compared to other areas and they wanted a home big enough for their growing family. They were prepared to pay some money out of pocket to get into their new home. John reached out to MHS Lending and discovered that with the VA jumbo loan they could take advantage of his military benefits and get into an amazing home for his family with significantly less money due upfront than with traditional loans.
“Our journey with getting our own home was quite challenging. But with the help of Alix and her team they made the process very easy. We are a military family, and as you all know we move quite a lot every few years. But we decided to settle down here in the beautiful city of San Diego. Alix was very helpful on all questions that we had. She was able to give us numbers in a timely manner whenever we saw a property we were interested in. It took some time to find the perfect home for us but when we did it was like love at first sight. They were able to give us a good interest rate and other perks. Without a doubt we will go through Military Homespot again on our next purchase.”
What is Remaining Entitlement?
On the flip side- some borrowers don’t use all their entitlement when purchasing a home using the VA loan. These buyers are then left with what’s known as “remaining entitlement”. According to the VA, this amount can be used either on its own or in combination with a down payment to take out another home loan in the future.
It’s important when purchasing a home using the VA Loan to understand fully what your benefits and entitlements are. Whether your dream home is above the limit and you can afford to pay the down payment for the difference, or your dream home is below the limit and you want to keep the remaining entitlement, the VA loan has something for you.
There are many rules and requirements to the VA Loan that can seem overwhelming, but the benefits are unparalleled by other loan programs. VA Jumbo loans are great examples of ways the VA Loan can help you get into the home of your dreams at a much lower cost than that of traditional loans.