This in-depth look at the VA's annual list of loan limits, along with our easy-to-read loan limits map, will help home buyers determine how large of a $0-down-payment mortgage may be possible.
The 2015 VA loan limits have been released. On December 9, 2014, the Department of Veterans Affairs announced that the VA's loan limits would be the same as FHFA conforming loan limits.
The limit for most areas where VA loans are available is $417,000. The highest limit on the FHFA's conforming list is $625,500, except for Hawaii where special legislation exists for higher limits. Many areas on the VA high-cost list last year had limits exceeding $625,500 — all the way up to $1,094,500. By complying with conforming limits, the VA limits are going down in 84 counties of 14 states when compared to 2014.
In the past, VA loan limits in high-cost areas have been able to exceed conforming loan limits thanks to legal authority granted in 2008. This authority was extended in 2012, but is set to expire on December 31, 2014. If that happens, the VA's effective loan limits will match conforming loan limits. Veterans will still be able to use their home loan benefit even in high-cost areas. However, VA loans over conforming loan limits will likely require a down payment. Congress may choose to reinstate the higher VA loan limit authority but that is uncertain.
Veterans First ® special projects director Tim Lewis says, "Deferring to FHFA conforming limits is no surprise. Mortgage regulators are attempting to unify the risk standards between conventional, FHA and VA. This looks like the first major step in that direction."
So What are Loan Limits Exactly?
"Limit" speaks to the amount of loan the VA will back. The VA backs, for the lender, 25 percent of the loan limit in the county, region or territory where the property is located. The word "limit" is a bit misleading, as the VA doesn't actually limit how much you can borrow. That's a figure left to the VA-approved lender, based on factors like an applicant's eligibility, debt-to-income ratio and credit history.
Loan limits also help the lender determine how much mortgage may be possible with a $0 down payment. For the most part, limits are $417,000, unless you're in a high-cost housing market. There, limits can be as high as $625,500 (higher in Hawaii). These areas include places like San Francisco, California, and Nantucket, Massachusetts. If you're eligible and want to borrow more than the loan limit in your county, you'll have to make a down payment.
How Does the VA Come Up With its Loan Limits?
Loan limits are commonly tied to the Federal Housing Finance Agency (FHFA) home price index. This independent regulatory agency oversees Fannie Mae and Freddie Mac, and other important elements of the secondary mortgage markets. Conforming loan limits are calculated using a formula outlined in the Housing and Economic Recovery Act of 2008 (HERA).
VA Loan Limit calculations are based on the FHFA home price index. To show the general direction of the housing market, let's look at some data from the FHFA Q3 2014 report. Prices rose in 40 states. Home prices went up .91% from Q2, and 4.55% from the same time last year. And the top five states for year-over-year price increases were Nevada, Hawaii, California, North Dakota and Florida. When you look at the conforming loan limits, you will see that they generally reflect these trends.
What Determines How Much House I Can Buy With $0 Down Payment?
VA loan limits are related to a borrower's entitlement. Entitlement is factored on an individual basis, and it's the amount the VA is willing to back for each borrower. Full entitlement is your loan limit divided by four. This is because the VA guarantees 25 percent of the loan amount.
If the limit is $417,000 in your area, then full entitlement is $104,250. Assuming your entitlement isn't tied up with another loan, the VA would be willing to assume $104,250 liability on your loan. Lenders will generally loan up to 4 times an eligible Veteran's available entitlement without a down payment, provided the Veteran is income and credit qualified, and the property appraises for the asking price.
So if you're looking to use your VA benefits to purchase a home with $0 down payment, it's important to know the loan limits in your new neighborhood. If your loan limit is lower in 2015, there may be a way for you to take advantage of higher limits even after 2014 limits expire. According to the Department of Veterans Affairs, a VA Loan in process with a purchase contract signed before January 1, 2015 would fall under the 2014 limits and may be your ticket to a bigger $0 down payment VA loan than you could get in the New Year.
2015 VA Loan Limits Map
Since a picture can be worth a thousand words, our 2015 VA Loan Limit map was created to help you look up this year’s loan limits quickly and easily. Click here to check out loan limits where you want to own a home.
So what can you expect to see? Well, in some areas, the loan limits went up and in some they went down. Generally speaking, increases were made in areas where prices went up. Such areas include certain counties in California, Maryland, New Hampshire, Tennessee and Washington. The biggest increase was in Boulder County, CO with a jump of $34,050 or 8.1%.
Though prices were up in many areas, there were also some communities where values took a dive. Virginia is one of the states affected by falling home prices, and that is reflected in the 2015 loan limits. Additionally, because the VA is deferring to the FHFA conforming limits, almost every city or county where VA loan limits exceeded $625,500 in 2014 will see lower limits for the coming year. New York and New Jersey are hardest hit by this change, as limits in high-cost counties will go down more than 36% in high-cost areas there. And, in places like Nantucket and San Francisco, where limits were as high as $1,094,625 in 2014, limits go down by as much as $469,125 in 2015.
Lewis says, "An educated borrower is a more confident borrower. We're giving our customers information to make educated choices when it comes to using their home loan benefits." He goes on to say, "The loan limits infographic is just one tool that can help."
NEXT STEP: To learn more about the VA loan limits where you would like to purchase a home or start a loan application, call 800-218-0084 or visit www.veteransfirst.com.
Veterans First is a trade name of Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., a Wintrust Community Bank. I NMLS# 449042 I Equal Housing Lender