The VA loan program is one of the most underutilized mortgage programs around. And while it’s true that the borrower needs to be “eligible” for VA financing, even those who have VA eligibility often don’t realize how good the VA program is, especially in neighborhoods with homes in the $700,000 to $1,500,000 range like Westchester and Playa Del Rey, CA.
VA Loan Limit for Los Angeles County
VA allows 100% financing up to a loan amount of $679,650 in Los Angeles County (2018 VA loan limit for 100% financing). This means that a Veteran can buy a home for $679,650 and not need a down payment. Not only that, but VA offers very aggressive fixed interest rates and flexible underwriting compared to standard Conventional and Jumbo financing. But $687,500 is not the maximum VA loan limit. It is just the maximum loan amount for $0 down financing. Some lenders will fund VA loans to loan amounts as high as $1,500,000. A VA loan over the 100% loan limit is known as a “Jumbo VA Loan”.
What is a Jumbo VA Loan?
A Jumbo VA loan occurs when the purchase price is higher than the Los Angeles VA loan limit for 100% financing. A down payment is required equal to 25% of the difference between the 100% limit and the higher purchase price. For example, let’s assume a Veteran with VA loan eligibility is buying a home in Westchester for $779,650 (an even $100,000 higher than the VA 100% loan limit). In this case, a down payment of only $25,000 is required and the new VA loan would be $754,650. So for only 3.2% down payment a Veteran can buy a $779,650 home, get a lower fixed rate and also have no monthly “mortgage insurance”, which is typical on other types of financing with less than 20% down. This also works for higher priced homes. Assume a home priced at $1,079,650 (and even $400,000 higher than the 2018 VA 100% loan limit). A down payment of $100,000 would be required (only 9%) and the VA loan would be $979,650. Even if the Veteran wants to put 20% down, which would qualify them for standard Conventional financing, a comparison is worth a look since VA offers such aggressive fixed rate loan programs.
Credit Standard for VA Loans
Compared to Conventional and Jumbo financing programs, VA is very flexible. Veterans can have a FICO as low as 580 with some lenders. VA is also very flexible when it comes to prior credit issues. Prior foreclosures and bankruptcies only need be “seasoned” two years to be eligible for VA financing on a new home. There is no seasoning requirement for short sales. And while with Conventional loan programs the debt to income ratio cannot go higher than 50%, it is not unusual to get VA loan approval for Veterans with a debt to income ratio above 50%. VA is more concerned with “residual income”, or income left after the mortgage payment, debt payments, maintenance, and income taxes are paid.
Who Actually Funds a VA Loan?
The Veterans Administration does not underwrite or fund VA loans. Lenders do. The Veterans Administration does “guarantee” the loan as long as it has been underwritten to VA issued loan guidelines. Not all lenders follow VA loan guidelines to the letter, often adding “underwriting overlays”, or tightening the guidelines. Working with a lender who specializes in VA financing is very important, whether the Veteran wants to refinance into a VA loan or purchase a home using their VA eligibility. The lender should be able to provide custom loan scenarios which will give details on the purchase price, loan amount, payment, and closing costs associated with a VA loan. Talking with a VA loan specialist and getting PreQualified prior to beginning the home search is an important first step in the home buying process.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.