What is a VA Jumbo Loan?
VA jumbo loans are an attractive option for a buyer who is interested in homes in a higher priced community. This type of loan makes higher-priced homes more achievable and does not require the kind of down payments as a conventional loan. If you have ever wondered whether you can exceed the loan limits in California, which are set by government agencies, the quick answer is “yes!” VA jumbo loans are used in exactly those situations when the purchase price is over the loan limit for the county. Let’s go back to the basics of VA loans in order to understand what this means.
To begin, the VA does not directly provide loans. Institutional lenders fund VA loans, which then receive a 25% VA Guaranty against loss in case of a borrower default. Should the VA guidelines require a down payment, that down payment provided by the buyer supplements that loan guaranty, so no matter how big the loan amount funded, the first 25% always maintains the VA Loan Guaranty. A lender provides a loan and determines the amount of money the Veteran can borrow. This will determine what kind of loan product the Veteran is qualified for. The lender will consider criteria such as a buyer’s income and debts when determining the amount of the loan. The two biggest differences between a conforming VA loan and a jumbo loan are interest rates and higher loan limits allowing you to finance one-hundred percent of a larger home.
The VA provides a guaranty to the institutional lender at 25% of the loan amount, just in case the buyer defaults. If a person tries to secure a loan that is higher than the conforming VA loan limit, then a Jumbo loan and a down payment will be required from the buyer, in counties in which high-cost limits are not available. In both cases, either conforming VA loan limits or high-cost/high-balance VA loan limits, the transaction requires a down payment of 25% of the difference between the purchase price and the loan limit. If the county loan limit accommodates one-hundred percent of the purchase price, no down payment is required.
The incredible benefit for Veterans using these jumbo loans is a greatly reduced down payment. Down payments can feel intimidating. But for VA jumbo loans, the amounts are not as much as you might initially think. In fact, VA jumbo loans have lower rates and significantly lower down payments compared to conventional home loans.
Do Loan Limits Vary by County?
As mentioned above, jumbo VA loans are ideal for situations when the purchase price of a home is higher than conforming loan limits. In a “high-cost” county like San Diego, the high-balance conforming VA loan limit is $690,000 for 2019.
You probably want to know what the actual numbers look like if you are looking at a home that happens to exceed the County’s VA loan limit. You might be concerned about the down payment. Let’s look at two examples, one in Riverside County and one in San Diego County.
If you plan to buy a home, then you are looking at a conforming loan limit of $484,350 as of January 1, 2019. If you go above this standard limit, say to $525,000, then you will need to get a jumbo home loan, and will probably want to calculate your down payment. You might first assume that the down payment is the difference between the purchase price and the loan limit. Not so. The down payment is 25% of the difference between the purchase price and the loan limit. If you decide to purchase above the conforming loan limit of $484,350, say at $525,000, then you will be responsible for a down payment of 25% of the difference between these two numbers.
This is the formula to determine a down payment when using a VA jumbo loan:
(purchase price minus conforming loan limit) x 25% = down payment
Here are the numbers for our hypothetical home purchase in, let’s say, Riverside County:
($525,000 – $484,350) x 25% = $10,163 down payment
Wow! If you were using a conventional loan to purchase a home in Riverside County, then you would have to provide a down payment upwards of 20% of the purchase price, which would be around $105,000. With the VA jumbo home loan, you are saving over $90,000.
An example of purchasing a home in San Diego using a VA home loan looks to provide an added benefit. San Diego County is considered a “high-cost county” because the median price of homes is higher than in other places around the country or state. The high-balance is $690,000 in 2019. Let’s say you want to purchase a home that costs more. If you go above this San Diego County VA loan limit, say to purchase a home that costs $782,000, then you will need to get a jumbo home loan. You know by now that the down payment will be 25% of the difference between the purchase price and the San Diego County VA loan limit.
[($782,000 – 690,000) = $92,000] x 25% = $23,000 down payment
The down payment in this example is only 3% of the purchase price. Think about what you can do what the money you save using a VA jumbo home loan instead of a conventional home loan with a 20% down payment. You can furnish your new home or put money away for savings.
Keep in mind that these calculations only apply if you have not used any of your loan entitlements yet, and as long as you have not defaulted on an existing VA loan.
Now to the fun part. Decide on some ideal locations for yourself and your family, if you have one, and start looking for homes. We have numerous home listings for you to browse.
What is the process of securing a jumbo loan?
The first step in securing a VA home loan or a VA jumbo home loan is to check your VA eligibility. If you are eligible for this benefit, then you will be able to obtain a Certificate of Eligibility (COE). You can verify your eligibility, submit evidence, and obtain a COE right on the VA website. You will need to show your COE to the lender when applying for a home loan.
Our VA loan limit calculator can help you accurately determine down payments in all counties, including high-cost counties.
Do you have questions or concerns about using your VA home loan benefits or need more information about jumbo loans? SoCal VA Homes can help you! We are experts in VA home loans and have developed three approaches to help you take advantage of our VA entitlements and benefits. Read more about our flagship Dreamweaver Home Purchase Process, as well as the VA Construction Financing Program and Veteran’s Angel Program. SoCal VA Homes is passionate about helping you overcome any hurdles as you navigate the process of purchasing just the right home for you!