How Bonus Entitlement Helps Veterans Buy Homes in California

california homeOne of the most common misconceptions of VA lending guidelines is how a VA Loan can help to buy a home in an expensive state like California. Whether you’re looking to buy near a local ski resort, a beach-side community, or your own slice of heaven somewhere in the middle, the cost of homes is heavily influenced by location. The good news is that the VA hasn’t set a maximum for the amount you can borrow with a VA Loan. The bad news is that there are or course, limits to how much “liability” the VA is willing to take on, and this will indeed affect the amount of money you can borrow. That brings us to the subject of your VA Entitlement.

First, let’s be clear that the Veteran’s Administration (the VA), is not in the business of loaning you money to buy a home. A mortgage Lender will loan you the money to finance your home, and all the VA does is “guaranty” those funds … up to a specific amount. This is what makes the VA Loan so appealing to mortgage Lenders; there’s little risk involved in making a loan with a VA guaranty. But this guaranty is limited to the lesser of 25% of the County Loan Limit or 25% of the actual Loan Amount. In situations where your credit and income are eligible and you know the specific amount of your Entitlement, you can multiply that amount by 4 and you’ll know exactly how much you can pay for a house without any down payment. Conversely, you can start with the Loan Limits for the County in which you’re looking to buy, then divide that amount by 4 and you’ll know precisely how much your Entitlement must be in order for you to buy a home in that County without a down payment. And since the VA Loan Limits are the same Loan Limits as the Federal Housing Finance Agency (FHFA), it’s quite easy to discover the limits in your area. You can find them here.

If you haven’t yet discovered what exactly your Entitlement is, take a look at my previous blog on that topic. In short, there are two types of VA Entitlement; Basic and Bonus. According to the VA website, “The basic entitlement available to each eligible Veteran is $36,000.” Using the 25% rule discussed above, four times that is equal to $144,000 – your maximum purchase price with no down payment. This made a lot more sense in 1944 when the VA first started guaranteeing home loans. However, since that time, both property values and loan limits have increased substantially throughout the country. Now, the Basic Entitlement by itself won’t do much if you’re trying to buy a $500,000 home. This is where the Bonus Entitlement comes in.

va loan calculatorAnd before we go any further, it’s important to know that the eligible Veteran will have their full VA Entitlement determined by adding the Bonus Entitlement to their Basic Entitlement, even if their Basic Entitlement is $0.00. Initially, every eligible Veteran is given sufficient entitlement to adequately cover the VA guaranty up to the FHFA Conforming Loan Limit. For example, The Loan Limit in San Diego County, CA is $612,950. Therefore, the VA guaranty is 25% of that, or $153,237.50. In this situation, if the eligible Veteran has the full $36,000 Basic Entitlement, the Bonus Entitlement is the difference between the VA guaranty and the Basic Entitlement ($153,237.50 – $36,000 = $117,237.50).

How the VA Jumbo Loan Program Works

One final piece on this. If the eligible Veteran is looking to buy a home that is priced above the Loan Limit for the County in which it’s located, they will need to finance 25% of the difference in cash “out of pocket”, as a part of their Down Payment. Remember, the VA Guaranty is only 25%, so they won’t need to cover the entire difference.

Let’s do a quick example:

The eligible Veteran has “Full Entitlement” available to them and is buying a home for $700,000 in a County where the Loan Limit is $636,150.

  • VA Guaranty is 25% of the lesser of the Loan Limit and the Loan Amount ($636,150 ÷ 4 = $159,037.50)
  • 25% of the Purchase Price is equal to $175,000 ($700,000 ÷ 4)
  • Down Payment Required: $175,000 – $159,037.50 = $15,962.50

VA requires that a combination of the VA Entitlement and any cash down payment must equal 25% of the appraised value or the purchase price, whichever is less. So in the example above, the eligible Veteran would like to buy a home that costs more than the 100% financing Loan Limit for that County, and using the Jumbo VA Loan Program, they can still do it using a relatively small down payment.

Despite the rising prices of homes across the state, using a VA Loan to finance your next home purchase, will allow you to keep most of the cash in your pocket and finance the bulk of your purchase price with rates that are still at historically low levels. Don’t hesitate to call if you have any questions. And thank you for serving our country.

Authored by Tim Storm, a California Loan Officer specializing in VA home 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.

What is a Jumbo VA Loan?

VA jumbo loanJumbo VA loans have become a commonly used mortgage product in Orange County, CA in 2018. But what exactly is a “Jumbo VA loan”? Well, the actual loan amount for what is considered Jumbo varies from county to county. First we need to discuss what a standard VA loan is.  *Updated to reflect 2018 VA Loan limits

Standard VA Loan Program

VA is one of the only types of home financing programs that allows for 100% financing. No down payment needed. VA determines what the maximum 100% financing limit is in each county based in the median home price for the county. The limit changes each year with notification for the upcoming year typically being released in November. The standard 100% financing limit for most counties in the United States in 2018 is $453,100. In “high cost” counties, like Orange, Los Angeles, and San Diego counties, the 100% limit is higher.

100% VA Loan Limit in Orange County, CA

The $0 down payment limit in Orange County and Los Angeles County is $679,650 in 2018. The San Diego County loan limit is $649,750. However, VA does allow for higher loan amounts than just the 100% limit. Some VA lenders will loan as high as $2,000,000.

Jumbo VA Loan Calculation

When an eligible veteran wants to purchase a home for more than the county loan limit but still with as little as possible down payment, it is time to calculate the maximum VA loan. A down payment is required, but it is minimal when compared to any other type of financing. The down payment is equal to 25% of the difference between the counties 100% financing limit and lower of the appraised value or purchase price.

Examples of Jumbo VA Loans

For example, a veteran purchasing a home in Irvine, CA for $800,000 would need a down payment of $32,812 ($800,000 – $679,650 = $120,350. $120,350 x .25 = $30,087 down payment). This means the total Jumbo VA loan will be $769,912. This means that this Orange County veteran is able to purchase an $800,000 home in Irvine (or anywhere in Orange County) with only 3.8% down payment. In most cases there will be a VA Funding Fee that is financed into the loan as well.

There is no other mortgage program that allows for such a low down payment at prices that high. To make it even better, there is no monthly mortgage insurance. While the FHA limit in Orange County is $679,650 with only 3.5% down, which translates to a price of $703,300, the monthly mortgage insurance for an FHA loan of $679,650 would be $481 per month. ($679,650 x .85% / 12 = $481). No mortgage insurance for a VA loan means big savings for the Veteran.

Refinance into a Jumbo VA Loan

It is important to note that a Jumbo VA loan is not only for purchasing a home. It can also be used for refinancing. This has been especially true over the past few years while other types of Jumbo loan programs have tightened guidelines and lowered loan to values.

How do you determine whether you qualify for a Jumbo VA loan? The first step is to contact a local California VA loan officer who specializes in VA financing. The loan officer should be able to prepare custom loan scenarios with details on the purchase price, loan amount, payment, and closing costs.

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.

VA Jumbo Loans are Available in California

jumbo va loan in californiaCalifornia Veterans have been taking advantage of the VA Jumbo loan program in huge numbers in 2017 and 2018. A VA loan is considered to be a Jumbo VA Loan when it exceeds the county limit for 100% financing. While some down payment is required when going over the ZERO Down payment limit, it’s not much. Especially when you consider that many of the high cost areas of California have zero down loan limits as high as $679,650 in 2018.

If you’re looking at buying the California home of your dreams – and the price reflects it – then a VA jumbo loan may very well be the best option for your mortgage.

In most veteran loan scenarios, the VA guarantees up to 25% of the total amount of the loan up to the VA loan limit in your county – which, in much of the US, is $453,100.

But what happens when the value of the loan exceeds your California county VA loan limit?

This is where VA jumbo loans come into the picture.

For the purposes of this example, let’s say that you live in Orange County where the 100% financed VA loan limit in 2018 is $679,650. You find the perfect house for you and your family, and it’s selling for $779,650.

You decide that you would like to use your hard-earned veteran benefits to take out a VA mortgage!

So, the VA guarantees $169,912 of your loan (with $169,912 being 25% of $667,650). But what happens with the remaining $100,000 of the purchase price?

Simple. The U.S. Department of Veterans Affairs mandates that on VA jumbo loans above the county loan limit, the borrower put down 25% of the difference between the cost of the loan and the applicable county VA loan limit.

Continuing on with our VA Jumbo Loan example from above, 25% of $100,000 ($25,000) would be required as a down payment, and the VA would guarantee 25% of $679,650 ($169,912).

Not bad at all! In this example you’re buying your $779,650 California dream home for only $25,000 down in addition to the required closing costs.

The real value of VA jumbo loans is apparent when you compare and contrast it to the standard down payment requirement of a conventional mortgage, which is typically 20% to avoid paying private mortgage insurance, or between 5% and 10% down with mortgage insurance.

This means that for the example $779,650 house, and if you wanted to avoid monthly mortgage insurance, a Conventional loan down payment would be $155,930 while a VA loan down payment would only be $25,000. And no mortgage insurance. That may be the best part.

Please keep in mind while house shopping that VA county loan limits vary throughout California and will be higher in areas with especially high property values, like Orange county, Los Angeles county, Alameda, San Francisco, and a few others. Once again, the standard VA county loan limit is $453,100, but it’s smart to check with your local California VA mortgage lender prior to looking at houses.

For example, as of 2018 the 100% VA county loan limit for Orange County is $679,650! There are 25 counties in California with 100% loan limits higher than the standard $453,100 limit,

To check what the VA county loan limits are for each county in the United States, you can visit the U.S. Department of Veterans Affairs at their loan limit website. For counties that are not listed on the website, the official VA loan limit is automatically set at $453,100.

Why is there such as large difference in county loan limits throughout the nation? In short, because the various housing markets across the country vary greatly.

Wherever you are, if you are in need of a substantial home loan, a VA jumbo loan is certainly worth checking out.

*Updated on January 10, 2018 to reflect 2018 VA loan limits

Authored by Tim Storm, an California VA Loan Officer specializing in VA Loan. 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.