This ARTICLE On 2020 VA Loan Limit Caps On Purchase And Refinance Transactions Was PUBLISHED On January 14th, 2020

Now that we have entered 2020, we are receiving calls and emails every day about VA loan limits and the removal of a true limit.

• This topic is still semi-confusing as mortgage investors are still learning the new guideline
• On June 25th, 2019, Public Law No: 116-23 or the BLUE WATER NAVY VIETNAM VETERANS ACT OF 2019 was passed, which had a few provisions that affect VA mortgage lending
• In this blog, we will detail how a veteran can purchase or refinance a home without a true loan limit

We will also cover and discuss the 2020 VA Loan Limit Caps On Purchase And Refinance Transactions.

2020 VA Loan Limit Caps Versus Other Loan Programs

In years past, VA loan limits have mirrored the county loan limits put in place for conforming loans.

• These conforming loan limits are put in place by the FEDERAL HOUSING FINANCE AGENCY (FHFA)
• The Federal Housing Finance Agency gathers Home Price Index (HPI) data from across the United States
• They analyze this data and determine maximum conforming loan limits for the following year
• They typically make an announcement towards the end of November each year and reveal the following years’ loan limits
• It is important to understand that each county has a different loan limit
• They also established a “floor” and “ceiling” loan limit
• The maximum loan limit for any county is 150% the “floor” conforming loan limit. For the calendar year 2020, the conforming loan limit is $510,400
• This is considered to be the “floor” loan limit

From this number, the “ceiling” loan limit will be $765,600. Alaska Hawaii, parts of Colorado, Idaho, Wyoming, California, New Jersey, New York, and the Washington DC area use the “ceiling” loan limit. Homes in these areas are more expensive and require a larger loan limit.

2020 VA Loan Limit Caps And Guidelines

New VA Loan Limit Guideline:

For any VA mortgage loans closed on or after January 1st, 2020, the VA will guarantee 25% of any loan amount at or below the county limit.

• The only reason they would not is if the veteran only has a partial entitlement
• Please see this blog on VA ENTITLEMENT for more information on partial entitlement
• If you currently have a VA loan or have defaulted on a VA loan in the past, you only have partial entitlement or in some cases no entitlement

All Veterans are encouraged to obtain a copy of their CERTIFICATE OF ELIGIBILITY (COE) from the U.S. Department of Veteran Affairs.

Purchasing A Home Above The County Limit

What about buying a home above the county limit?

• There is still some confusion around this topic
• We are expected to have more information in the coming weeks
• As of now, it looks like you will NOT need a down payment when purchasing a home above the county loan limit assuming you have FULL entitlement
• However, the caveat is finding a lender who does not have limits
• The majority of lenders have their own LENDER OVERLAYS, which can limit how much you can borrow without a down payment

The good news is Gustan Cho Associates does not have lender overlays to get in the way. We are able to offer 100% financing without a loan limit in all states we are licensed in.

Case Scenario On 2020 VA Loan Limit Caps 

Example: A veteran with FULL entitlement is trying to buy a $700,000 home in Chicago Illinois. This is Cook County Illinois where the conforming loan limit is $510,400.

OLD RULE:

• The VA will guarantee 25% of the loan. Meaning the Veteran would need a down payment equal to 25% of the difference over the county loan limit
• $700,000 – $510,400 = $189,600
• The veteran is responsible for 25% of the difference as a down payment or $47,400

NEW RULE:

• The VA has removed conforming loan limits for zero down payment
• Meaning the Veteran no longer needs a down payment and the VA will still guarantee 25% of the loan amount
• We have the ability to lend up to $3,000,000 without a down payment

VA Interest Rate Reduction Refinancing Loans (IRRRL)

VA Interest Rate Reduction Refinancing Loans (IRRRL):

• Since the VA already partially guarantees these mortgage loans, the county limits will not apply
• If you already have a VA mortgage and you’re looking to complete an interest rate reduction refinance loan, you will not have to worry about your county loan limit
• This holds true regardless of how much entitlement you have remaining
• Please see our Blog on VA IRRRL for more information. This is a great opportunity for our veterans to save money on their mortgage
• The U.S. Department of Veteran Affairs has very strict guidelines on these refinance transactions
• They must lower your interest rate and save you money

You must recoup all closing costs within a three-year period. Guidelines on closing cost recoupment were added to protect the equity in our Veteran’s homes.

Changes Of 2019 Versus 2020 VA Loan Limit Caps

Loan Limit Changes from 2019 to 2020:

• As mentioned earlier in this article, every year the Federal Housing Finance Agency changes the maximum loan limits in each county across the nation based on previous years’ home price index
• That being said, there are instances where the 2020 loan limits decrease in a specific county
• For a VA mortgage in the calendar year of 2020, you can use the higher of the two loan limits before you need a down payment
• Meaning if the county limit is higher in 2020 than in 2019, use the new limit
• If the loan limit was higher in 2019 than 2020, you may still utilize the 2019 loan limit

It is yet to be known if the same will be true in 2021. We will keep an eye out for any changes.

As we continue to learn more about the VA loan limits, we will update our readers. Gustan Cho Associates are always on top of changing guidelines. We pride ourselves on being experts in VA financing. For any specific question please contact Mike Gracz on (800) 900-8569 or email gcho@gustancho.com. Our team is available seven days a week including holidays. Even if you have been turned down in the past, please give us a call. There is no minimum credit score requirement for a VA mortgage. Look forward to helping you and your family with all your mortgage needs.