Marcus Marion, CMA™ Do you want to use a VA loan to purchase a fairly expensive home? Do you need to borrow more than the “conforming” loan limit for your county? Have you heard about the VA jumbo loan but aren’t really sure what it means?
If you answered yes to any of these questions, you’re in the right place.
This article will help you make sense of one of the most confusing subjects in the world of VA loans. You’ll learn what a VA jumbo loan is, how it works, and what benefits it can provide to you as a borrower.
What Is a VA Jumbo Loan, Exactly?
In short, a VA jumbo loan is a government-backed mortgage loan that exceeds the conforming mortgage size limit in the county where the home is located. There’s a lot going on in this definition, so let’s break it down one term at a time.
VA loan: A government-backed mortgage offered to eligible veterans, service members, and their surviving spouses. VA loans offer competitive interest rates, no down payment requirements, and other compelling benefits.
Conforming loan limit: The maximum loan amount that can be purchased by Fannie Mae and Freddie Mac, which sets the standard for most conventional mortgages. These limits vary by county and can be found on the FHFA.gov website. They’re updated annually. In 2023, the limit for most counties is $726,200 but can reach $1,089,300 in high-cost areas.
Jumbo loan: A mortgage that exceeds the conforming loan limit set by the Federal Housing Finance Agency (FHFA). These “oversized” loans typically require a higher down payment and stricter underwriting standards, due to their higher level of risk.
So, a VA jumbo loan combines the advantages of a VA loan (such as no down payment and competitive rates) with the ability to borrow more than the conforming loan limit. This makes it a viable option for veterans seeking to purchase homes in high-cost areas.
The bottom line: If you want to use a VA loan to buy a house, and you need to borrow more than the conforming loan limit for your particular county, you’ll be using a VA jumbo loan.
What Does the ‘Jumbo’ Label Mean for Borrowers?
At this point, you might be wondering why these labels matter. The short version is that jumbo loans often impose stricter criteria, compared to their smaller “conforming” counterparts.
A larger loan amount brings more risk to the lender. To mitigate this added risk, a mortgage lender might pay closer attention to a borrower’s credit score, debt-to-income ratio, and other qualification factors.
But unlike a regular jumbo loan (that does not receive government backing), borrowers who use jumbo VA loans can still avoid making a down payment. That’s a huge benefit, especially when you consider that regular jumbos often require 20% down.
The one caveat here is that you need to have “full entitlement” to avoid the down payment on a VA jumbo loan. If you have “remaining entitlement” (perhaps because you’ve used a VA loan in the past and still own the home), you’ll probably have to make a down payment if your loan amount exceeds the conforming limits.
Full Entitlement Needed to Skip the Down Payment
This next part is a little confusing, especially for first-time buyers who have never been through the process before. So let’s break it down piece by piece:
- If you have full entitlement for a VA loan, you can borrow any amount of money without having to make a down payment—even into the jumbo range. You can borrow as much as the lender is willing to lend to you without putting any money down.
- If you have remaining entitlement for a VA loan, you can only borrow up to your county’s conforming loan limit without making a down payment. If you borrow more than that limit, you’ll have to put some money down on the purchase.
As it states on the Department of Veterans Affairs website: “So if you’re able and willing to make a down payment, you may be able to borrow more than the county loan limit with a VA-backed loan. Remember, your lender will still need to approve you for a loan.”
The amount that a borrower with remaining entitlement would have to put down on a VA jumbo loan can vary due to several factors. It’s usually based on the difference between the loan amount and the conforming limit for the county where the home is located.
Summary of Key Takeaway Points
We’ve covered a lot of information and terminology in this article, and it’s a fairly confusing subject. So let’s wrap up by summarizing the key points.
Here’s what you should take away from this article:
- VA jumbo loans are government-backed mortgages that exceed the conforming loan limit in the county where the home is located.
- VA jumbo mortgages offer the benefits of a VA loan (such as no down payment requirements, competitive rates, and no mortgage insurance) with the flexibility to finance more expensive homes.
- Borrowers with full entitlement in the program can avoid making a down payment on a VA jumbo loan, regardless of the amount being borrowed.
- Borrowers with remaining entitlement might need to make a down payment on a VA jumbo loan if the amount exceeds the conforming loan limit.
- VA jumbo loans typically have stricter underwriting standards due to their larger sizes. This means lenders might give extra scrutiny to a borrower’s credit score, debt-to-income ratio, and other qualification factors.
- VA jumbo loans can be a good option for veterans who are looking to purchase a home in a high-cost area.
Learn more: This article is part of a broader series that covers all aspects of the VA home loan program. It’s designed to educate military members and veterans on this important benefit. You can use the search tool at the top of this page to research almost any topic relating to VA loans!
