Section 2.10

VA Loan Limits

In 2019, Congress passed the Blue Water Navy Vietnam Veterans Act. When this law went into effect on January 1, 2020, the law made it so there would no longer be loan limits on VA home loans for borrowers with their full entitlement. However, the law did leave loan limits in place for veterans who only have a partial entitlement remaining.

In this article, we'll briefly explain what loan limits are, how they used to and how they currently affect VA loans, and what they mean for you based on entitlement amount.

What Are Loan Limits?

Prior to the implementation of the Blue Water Navy Vietnam Veterans Act, all VA loans were subject to conforming loan limits. These are set every year by the Federal Housing Finance Agency (FHFA) and would be adopted by the VA as their own annual loan limits.

Even though the VA no longer follows the conforming loan limits set by the FHFA for full-entitlement loans, the limits themselves have not disappeared. The FHFA continues to set them for conventional and other loan programs, and they still influence partial-entitlement VA loans.

When the FHFA is setting the conforming loan limits, they look at the average home price in a given geographical area: state counties. Each county gets its own conforming loan limit (CLL), which means the limits can vary from county to county. For example, the conforming loan limits in Fresno County, CA, and Orange County, CA, can be (and often are) different.

How Did They Used to Affect VA Loans?

In general, before 2020, loan limits were used as the maximum possible loan size the VA was willing to offer their 25% guarantee on.

If you wanted to buy a home that was above your county's conforming loan limit—a type of loan referred to as a VA jumbo loan—the VA would still only guarantee 25% of the loan limit amount and not 25% of the total loan amount.

Since the VA's 25% guarantee reduces risk and allows lenders to offer such great terms, many lenders would require VA jumbo loan borrowers to make up some of the difference by bringing in a down payment. This down payment would be calculated as 25% of the difference between the limit and the actual loan amount.

How Loan Limits Affect VA Loans Now

As we've mentioned, full-entitlement VA loans are no longer subject to loan limits.This means, essentially, that any veteran or servicemember with full entitlement can get a loan of any size—even millions of dollars—without having to make a down payment.

But what about those without full entitlement? If you only have partial entitlement remaining, then your loan will still be subject to your county's loan limits, albeit in a slightly different way.

How Do I Know What My Entitlement Is?

While there's a lot that goes into calculating your entitlement (if you're interested, we have a whole video explaining how to do it), all you really need to know is that, since you're likely new to VA loans, you've probably never used your VA loan benefits before. And if you haven't used them, then you'll have full entitlement.

While it is possible for those who have used their VA loan benefits before to also have full entitlement, it's not automatic. There are extra steps you have to go through, either by selling your home or requesting a one-time entitlement restoration after it's paid off, in order to have your full entitlement restored.

Limits for Full Entitlement

While it's true that there are no longer loan limits affecting how much the VA is willing to guarantee on your loan, that doesn't mean a lender will automatically lend you millions of dollars.

Even if you have your full entitlement, lenders will only let you borrow what you can afford. Your loan amount will still be limited by your credit history, income, and other financial factors such as your debt-to-income ratio and residual income.

Your lender's requirements in these areas are meant to protect you so you don't overextend your finances.

However, with a full entitlement and the proper financial qualifications, you CAN actually get a VA home loan worth millions of dollars—all without needing a down payment.

Limits for Partial Entitlement

Now, if you do ever get a VA loan and end up with only partial entitlement, it's important to understand how that will work with future VA loans.

One of the benefits of the VA loan program is that you're able to reuse your benefits. However, though getting a second VA home loan is possible, it will likely be subject to the conforming loan limits in your area.

That's because the Blue Water Navy Vietnam Veterans Act directly states that the amount of your partial entitlement will either be based on the smaller amount of either:

• 25% of the county loan limit minus your used, non-restored entitlement^†, OR
• 25% of the loan amount

Based on that first calculation possibility, you can see where conforming loan limits can, once again, come into play when you only have partial entitlement.

^†It is possible to restore your entitlement. If you want to learn more about how to restore your full entitlement, please feel free to visit the VA's website.

No Loan Limits, Greater Opportunity

Because many servicemembers and veterans don't have to worry about loan limits on their VA loans, they have greater freedom and opportunity to purchase their dream home without having to worry about making a down payment. It's an incredible benefit that no other home loan can compete with.