What You Need to Know About VA Loan Limits
By Lisa Lee
The news for military homebuyers in Hawaii this year is that the Department of Veterans Affairs has reduced the VA loan guaranty limit for people who want to buy a home in Honolulu from $750,000 to $625,000, making it the same as the limit for all of Hawaii.
VA loans are a unique benefit for military veterans. They provide 100 percent financing, so military buyers can get into a home without having to provide a down payment. The loan guaranty limit is determined each year based on sales figures from the Federal Housing Commission.
While much is being made of the new loan limit, Shannon Smith, a REALTOR and partner at Prudential Locations who has worked with many military clients, is hoping they won’t discourage potential buyers.
“The majority of military buyers qualify for and are looking at homes in the $350,000 to $575,000 price range, so they won’t be affected by the new limit,” she explains.
“The impact of the loan limit may be on the higher-ranking officers who are looking at the higher-priced, executive-style homes, but these buyers are usually coming to the table with down payments anyway.”
The VA loan limit applies to the amount of the loan that the VA will guarantee, but it doesn’t limit the purchase price of the house, so a VA buyer who can provide a larger down payment can buy a more expensive home up to $1.5 million.
Many active military are unaware that it is possible to hold two VA loans at the same time. The total of the two loans, however, is limited to the VA loan limit of their county of residence. For example, if an officer owns a home in San Diego with a $225,000 loan and gets transferred to Hawaii, he or she can finance a new home on Oahu up to $400,000.
(The two loans total the Honolulu county limit of $625,000.)
Many people are also unaware that you can qualify for a VA loan even if you have had a foreclosure in the past. The foreclosure does limit the amount you can borrow: The amount that was foreclosed upon is deducted from the loan limit. For example, a veteran who had a foreclosure in the 1980s on a $125,000 loan can still be eligible for a loan up to $500,000 in Honolulu.
Smith points out that VA loans do come with some specific requirements that VA buyers should be aware of when they are budgeting and shopping for a new home.
VA FUNDING FEE. This is a one-time fee that can be financed as part of the mortgage loan. This is the amount the VA charges to guarantee the loan in case the buyer should default. It is similar to mortgage insurance for conventional loans.
The VA funding fee is 2.15 percent of the total loan if it is 100 percent financed. For each subsequent VA loan, the fee is 3.3 percent of the loan amount. This fee is waived for buyers with VA disability. If the buyer makes a down payment of at least 5 percent of the purchase price, the fee is reduced to 1.5 percent.
“Putting down that 5 percent can make a big difference in your overall costs,” says Smith. “The 2.15 percent fee on a $300,000 loan is $6,450, but if you can make a $15,000 down payment, you will save $2,000 in the funding fee.”
VA NOT-ALLOWABLE FEES. VA buyers should be aware of that VA loans don’t allow the veteran buyer to pay for certain fees that are often paid for by buyers, such as escrow, notary, and homeowners’ association fees; but these fees can be paid by others or waived. Some lenders, such as Wells Fargo, will pay for these fees so that their VA buyers can stay competitive and not have to ask the seller to pay for them. VA buyers are allowed to pay for appraisals, titles, and credit insurance recording fees.
PERMITS. It is not uncommon in Hawaii for a property to have an addition or remodeling that has not been permitted. VA loans require that the property either be permitted or returned to its original condition; it cannot simply be excluded from the home valuation as is done in a purchase with a conventional loan.
Shannon Smith encourages VA buyers to work with real estate agents who are experienced with the unique features and requirements of VA loans. “It can save you significant time, help you find the right home and help ensure that you’re competitive when you go to make an offer.”