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Are 2016 VA Loan Limits Too Low?

How much does your dream home cost? Depending on where you live and how much you can afford, it may range from under $100,000 to over $1 million. Home buyers who are eligible for VA home loan benefits have the potential to purchase a home at any price. However, in order to take advantage of the program’s $0 down payment option, the loan must be within VA’s limits.

On December 17, 2015, the 2016 VA loan limits were released. Like 2015, VA limits are the same as conforming loan limits―the standard for loans backed by Freddie Mac and Fannie Mae. Limits in most areas where the VA loan benefit can be used remain at $417,000. Twenty-six states and territories remain on the high-cost-county list with limits over $417,000 and up to $625,500. No new areas have been added to the high-cost list, and none have been taken away. And Hawaii still has limits that can exceed $625,500.

So what’s actually new with these new loan limits? In alignment with home values in these areas, loan limits are up in 39 high-cost counties within six states. To view a color-coded comparison table showing the differences between 2015 and 2016 loan limits, click here and scroll to the end of the article.

What Are VA Loan Limits, Anyway?

Think of the word “limit” as the maximum loan amount the VA is willing to back. VA guarantees about 25% of each loan originated by approved lenders up to the limit. This secures the loan for the lender. So a qualified Veteran with full entitlement may be able to get a loan up to the limit with no down payment. Limits can vary with area housing markets. Though most eligible borrowers (unless exempt) pay a funding fee to use the benefit, VA loans still end up costing borrowers a lot less out of pocket compared to conventional loans.

In most places where the Department of Veterans Affairs backs loans, the limit is $417,000. In 204 counties in 26 high-cost states and territories, loan limits can be higher―as high as $625,500 ($721,050 in Honolulu).

Are VA Loan Limits Too Low?

A review of recent data helps to answer the question of whether loan limits meet the needs of those who use their VA loan benefit to purchase a home.

According to the Department of Veterans Affairs 2014 Annual Benefits Report, the average VA loan was $227,132. The National Association of Realtors® relays the median existing home price as $219,600. Given a VA loan limit of $417,000 in most areas, VA borrowers don’t come close to the limit when they purchase a home. In reality, with the average Veteran household income at $61,884 according to the Census, higher priced homes may be out of many service members’ price range.

Based on this information, it would seem that the 2016 VA Loan Limits would be more than enough. Tim Lewis, Purchase Group Manager at top-rated VA specialty lender iFreedom Direct®, agrees. “It’s true, most of our Veterans we assist obtain loans in that average range.”

Top 5 Most Vet Populous States and Loan Limits Near Popular Bases

State / Vet Pop Avg Household Income / % $100,000+ Military Base / Loan Limit
California / 1,893,539 $73,722 / 34.5% Camp Pendleton / $625,500
Texas / 1,583,272 $65,984 / 28.2% Fort Hood / $417,000
Florida / 1,569,406 $58,190 / 22.4% NAS Key West / $529,000
Pennsylvania / 943,417 $56,781 / 21.2% Tobyhanna Army Depot / $625,500
New York / 912,499 $64,555 / 28.1% Fort Hamilton / $625,500

Yet Lewis shares that some customers use VA loans to purchase homes priced well above the area’s loan limit. Reason? Aside from other advantages of the VA program — including no required mortgage insurance — a VA loan with a down payment still requires less money paid up front than some conventional programs for certain borrowers. The VA backing on the amount up to the limit plus the borrower’s down payment for the amount over the limit is expected to total 25% of the purchase price.

Lewis shared the story of how iFreedom Direct helped a successful Seattle medical professional purchase a $1.4 million home. Rather than pay the sizeable down payment associated with a conventional loan, the Reservist only had to put a down payment on the amount of VA funding over Seattle’s loan limit. End result? “We were able to get him into that home with significantly less cash out of his pocket,” shares Lewis.

Top 5 Highest Income States for Veterans and Loan Limits Near Popular Bases

State / Vet Pop Avg Household Income / % $100,000+ Military Base / Loan Limit
Maryland / 427,068 $89,378 / 44.6% Fort Detrick/$625,500
Alaska / 71,000 $85,518 / 40.9% Fort Wainwright / $625,500
Virginia / 726,470 $82,865 / 40.4% Quantico / $625,500
Hawaii / 112,625 $85,352 / 40.6% Pearl Harbor / $721,050
D.C / 30,520 $79,629 / 41.7% Pentagon / $625,500

Most Veterans buying homes in 2016 will likely find that the VA loan limits make a zero down payment VA loan possible where they want to buy a home. And for those who can purchase a higher priced property, the VA loan limits make it possible for qualified Veterans to obtain financing with less money out of pocket than conventional loan programs.

Next Step: If you’re thinking about buying a home and want to know the loan limit in a certain area, check out the VA Loan Limit Finder (click here).

For more information about VA loan limits, contact an approved lender that specializes in serving Veterans.

Sources:
DoD State Installations tool; U.S. Census Veteran Data; VA Annual Benefits Report; NAR Median Home Price statistics.

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