Veterans looking for a VA home loan are in luck! As of January 1st, 2020, there’s no VA loan limit. Yeah, you read that right. There’s no freakin’ limit. This means that if you’re looking to buy a $1 million home, as long as you meet the requirements for a VA loan, you’re able to get it and still enjoy the perks of paying a $0 down payment.
This standard mortgage alternative is a great way to build wealth as a veteran without worrying about loan limits or the down payment. However, there are numerous different types of VA loans that you can apply for, and figuring out which one works best for you in terms of interest and loan length can help you further compound your wealth.
Here’s what to know about VA loan limits in 2021 and how to make the most out of these veteran-specific loans.
What Are VA Loans?
VA loans are partially backed (guaranteed) by the Department of Veteran Affairs (hence the VA).
The term VA loan limit in 2021 refers to the limit on the amount that can be borrowed as a VA home loan without making a down payment. These loan limits apply to service members and veterans with one or more active VA loans or who haven’t paid off a VA loan before.
These types of loans are considered to be an alternative to a standard mortgage, with the idea being that you can access the loan as a veteran and enjoy making a $0 down payment for your home.
Is there a catch? Not really. However, it doesn’t mean you can buy that $1 million home mentioned above just by signing on a dotted line. You still need to meet the credit and income requirements for the loan amount. And, lenders can put a cap on their in-house loan limits despite there being no cap federally.
It’s also important to note that eligible borrowers can use a VA loan to purchase a property as a primary residence or to refinance an existing mortgage.
How Do VA Loans Work?
They work somewhat differently than traditional mortgages, mostly because the US Department of Veterans Affairs doesn’t actually create the loans; they only guarantee the loans from default. Essentially, they’re acting as an intermediary between you and the actual lender.
This guarantee is what gives private lenders the confidence to offer an initial financing of $0 and other great rates and terms.
However, from a pure process standpoint, VA loans work very similarly to most other mortgage loans, only with a few caveats. The normal VA loan process works as follows...
You Get Prequalified
You’ll find a VA lender and go through the pre-qualification process to get an estimate of the amount of home you can afford based on your income, credit score, and other financial factors. Prequalifying is the first step to paving the way for the next step: to get pre-approval for a VA loan.
This is a crucial step and prepares you to take action when you find the perfect house. Lenders will verify your income and financial data to get a clear view of your purchasing power. As a final result, you’ll get a pre-approval letter that will show real estate agents and home sellers that you are a solid and responsible buyer with the ability to close on the home.
Make an Offer
When you and your agent find your dream house (assuming it’s been approved for a VA loan), it is then time to bid and negotiate a contract with the seller. That is why it’s vital to find an agent who is a VA loan specialist you can trust and who knows the ins and outs of VA loans.
VA Loan Appraisal & Underwriting
Now, the lender will order an appraisal. This is less about inspecting the home and more about meeting the VA requirement that the home is meeting fair market value and basic VA property requirements. Meanwhile, the lenders evaluate your income, financial and related documents together with the appraisal that you already had completed. If everything comes out correctly, an authorization will be issued for closing.
You will sign all of the legal documents and paperwork that require you to close on the house, and then you’ll finally have the keys to your well-deserved dream loan (without any required down payment!).
What Are the Requirements to Qualify for a VA Loan?
To qualify for a VA loan, you must meet the following requirements:
- If you’re on active duty, you must have served 90 continuous days in the US military. If you’re not on active duty, then you must…
- Be a veteran in compliance with the length of service requirements, which are generally 90 days in wartime and 181 days in peacetime. Or, you can…
- Have completed 90 days of active duty or six creditable years in the Selected Reserve or the National Guard.
- You’re eligible for a VA loan also as the spouse of a veteran who died while on duty or from a service-related disability and has not remarried. The spouses of those who have been missing in action in service or who are prisoners of war may also be eligible (in these unique cases, we recommend reaching out to your local VA office).
What Are the VA Loan Rates in 2021?
While perhaps the biggest perk of a VA loan is that you don’t have to make any down payment, another massive plus is that you’re often snagging super good rates. Interest rates with VA loans are usually lower than with a regular mortgage loan. Just check out the VA loan rates for 2021.
Type of LoanInterest RateABR30-Year Fixed VA Purchase2.250%2.577%15-Year Fixed VA Purchase2.250%2.727%30-Year Optimization (IRRRL)2.625%2.786%15-Year Optimization (IRRRL)2.250%2.547%30-Year VA Cash Withdrawal2.750%3.021%15-Year VA Cash Withdrawal2.375%2.905%30-Year Fixed Jumbo VA2.250%2.587%30-Year Jumbo Streamline (IRRRL)2.625%2.796%30-Year VA Cash Withdrawal Jumbo2.750%3.040%
What Factors Determine the Interest Rate of a VA Loan?
While the rates above look pretty sexy, it’s not always guaranteed that you’ll get to enjoy those same interest rates. Factors that affect the interest rate of a VA loan include:
- Your credit score
- The type of loan (purchase, IRRL, jumbo, etc.)
- Length of loan
- Current market conditions
Who determines the VA loan rate? The mortgage companies and banks (private lenders) set the interest rate for VA loans. This is contrary to what most people believe, but the Department of Veterans Affairs doesn’t set the rate or dish out the loan; they only back a portion of it against default. Remember, there may be no VA loan limits in 2021, but each loan still comes with an interest rate.
Take Advantage of No VA Loan Limits in 2021
Now’s the time to take advantage of low interest rates and no VA loan limits in 2021, especially if you’ve been looking to purchase a home for a while. Your first order of business will be to speak to a VA loan specialist. You can find a local VA loan center here and discuss your options.
Download the Wealth Stack app for free on the App Store or on Google Play and browse through our videos. They'll help ensure that you understand how your personal capital structure affects your ability to build wealth. Buying a home will certainly help, but there are a few other things to consider for veterans specifically.