Are you a veteran or active futy member of the United States military who requires an enormous loan for your house? Then a VA Jumbo loan is for you.
.What is a VA Jumbo Loan?
A VA loan is considered a VA jumbo loan when the loan amount exceeds the county-specific VA loan limit. The VA loan limit for most counties in 2022 is $647,200
If you are able to qualify for a loan of up to $1million or even $5million, then you can purchase this home with a VA loan with no down payment.
How Does it Work?
The same as a non-jumbo loan. The process of applying and qualifying is the same. The only difference is that the interest rate on jumbo loans are slightly higher than a VA loan under $647,200.
There may also be a higher credit score requirement. For a non-jumbo the credit score needed is 620. For a VA jumbo the credit score requirement is 640.
Also, not all lenders offer the jumbo loan program.
What are the VA loan requirements for a jumbo loan?
Most veterans or active military members are eligible for VA home loans, including jumbo loans if they:
- Served at least 90 days during wartime OR
- Served at least 181 days during peacetime
If you’re a veteran (and not currently serving) you must have anything but a dishonorable discharge.
If you have less than the service amount above, but you were discharged for medical reasons or a service-connected disability you may still be eligible.
In addition, surviving spouses of veterans who lost their life while serving or due to their time in the service may be eligible.
If you are a reservist, you’ll need to have served for 6 years to qualify.
Eligible does not mean that you also qualify for a jumbo loan. You also have to meet the lending requirements to obtain a jumbo loan. For example, meet the credit score requirement of 640, have enough income to be able to afford the mortgage payment and all other bills you may have.
How to Qualify for a VA Jumbo Loan
The VA doesn’t set loan requirements, each lender does. That being said, most lenders have stricter requirements for a jumbo loan because of its risk. There is a big difference between a $200,000 loan versus a $700,000 loan for example.
Lenders need to ensure that you can afford the loan comfortably and are a low risk of default. This means great qualifying factors, including high credit scores. Fortunately, the requirements aren’t as tough as conforming jumbo loans so it’s still easier for veterans to secure financing.
Jumbo Credit Score Requirements
Your credit score is one of the first things lenders review when approving (or denying) your jumbo loan application. Your credit score tells lenders how you handle your finances. Do you pay your bills on time? Do you overextend your credit limit? The higher your credit score, the more financially responsible you are – which lenders like.
While the VA doesn’t have a minimum credit score requirement, regular VA loans usually need a 620 credit score or higher. Most lenders bump up that requirement for VA jumbo loans, requiring around a 640 or sometimes higher credit score.
Typically, the further away you get from the standard loan limits, the higher the credit score lenders want, especially if you get up to the $1 million mark.
Jumbo Debt-to-Income Ratio
Your debt-to-income ratio is a comparison of your monthly income to your monthly debts. If you over commit yourself financially, it’s hard to keep up with your bills. This puts VA lenders at higher risk of default, which they don’t want.
Ideally, VA lenders want your debts to take up less than 43 percent of your gross monthly income (income before taxes). This means for every $1,000 you make, you shouldn’t commit more than $430 to debt.
Let’s say, for example, that you make $150,000 a year. Your total debts (including the new mortgage with taxes and insurance) shouldn’t be more than $5,375 per month.
The debt ratio of 43% isn’t set in stone, this can be increased depending on your credit score. We’ve seen debt to income ratios as high as 60%.
VA lenders don’t focus on your debt-to-income ratio as much as some other loan programs. The focus is mainly on your disposable income or money you have left each month after you pay your debts.
VA has a set amount of disposable income each family needs based on their household size and location. So in addition to the lender’s DTI requirements, you must meet the VA’s requirement for disposable income.
VA states that their disposable income requirement is the reason the VA loan default rate is so low. When they look at your disposable income, they ensure that you have enough money for ‘regular’ expenses, covering the daily cost of living and even some ‘non-essentials’ so you don’t feel like you’re sacrificing all the time.
Income and Employment
All VA loans require stable income and employment. Lenders must prove to the VA that they did their due diligence and ensure that you can afford the larger jumbo loan.
There aren’t strict requirements regarding how much money you must make or how long you must be at your job, though. Most lenders look for stability and consistency. In other words, have you been at the same job for a while? If not, did you stay within the same industry?
Common examples of changing jobs, but still being able to get a loan are:
- Changing jobs for higher income but staying within the same industry
- Changing jobs in a new industry after going back to school or undergoing specific training
- Changing jobs within the same company because you got a promotion
Lenders need to make sure your job is reliable, and you have what it takes to succeed at the new job if you changed jobs. If you changed industries, the lender may ask for proof of why you qualify for this job to ensure you’ll keep the job long-term.
VA jumbo loan doesn’t require veterans to have cash reserves, but in some cases the lender may require it. Depending on the lender, you may need reserves if you own other property. If you don’t have it in a liquid account (savings, CDs, etc.) your retirement account can be used as reserves, but only up to 70% to account for volatility, taxes, and the early withdrawal penalties.
VA Jumbo Loan Limits
Today, the VA doesn’t have jumbo loan limits. You can borrow as much as you can qualify for based on the requirements above. Each lender sets their own requirements since they take the risk on the loan.
You can figure out your own loan limits by looking at your income and taking 43 percent of it and subtracting any current debts you carry. What’s left is the mortgage payment most VA lenders would allow.
VA Jumbo Loan Down Payment
True to its name, VA jumbo loans don’t require a down payment. That means you can borrow more than $647,200 and still not put any money down.
Before you do, make sure it’s in your best interest. When you make a down payment, you earn instant equity in the home. Not only does it lower your mortgage payment, but it increases your chances of securing even better loan terms. The more money you put down, the less risk the lender takes. This usually means they’ll provide a lower interest rate and/or lower fees.
Assess your situation before deciding if you’ll make a down payment. If you own a home and will sell it, you could use the proceeds from the home to put down on your new home, but again, it’s not required.
VA Jumbo Loan Funding Fee
The VA charges a one-time funding fee on all VA loans, including VA jumbo loans. The fee helps decrease the burden on U.S. taxpayers because the VA guarantees the loans and doesn’t require veterans to carry mortgage insurance.
All borrowers pay a funding fee unless you meet one of the exceptions below. Most veterans pay 2.3% of the loan amount in a funding fee, but there are some exceptions:
- Less than 5% down – 2.3%
- 5% – 10% down payment – 1.65%
- 10% or higher down payment – 1.4%
These funding fees apply for your first-time use. If you’re re-using your VA loan benefit, you’ll pay the following funding fees:
- Less than 5% down – 3.6%
- 5% – 10% down payment – 1.65%
- 10% or higher down payment – 1.4%
Exceptions to the VA Funding Fee on a Jumbo Loan
If you meet any of the following, you may be exempt from the VA funding fee:
- You have a service-related illness or injury and receive disability pay from the VA
- You have a service-related illness or injury and are eligible to receive disability pay but are on retirement pay
- You are a surviving spouse of a veteran who died as a result of his/her time in service you receive Dependency and Indemnity Compensation
- You received the Purple Heart
How to Pay the Funding Fee
Most borrowers pay the VA jumbo loan funding fee by wrapping the fee into the loan, but this does slightly increase your loan amount and your mortgage payment.
You can also pay it out of pocket at closing.
Pros and Cons of a VA jumbo loan
- You may not need a down payment
- Low interest rates
- Flexible underwriting requirements
- Low credit score requirements (compared to other loan programs)
- No mortgage insurance required
- Not all lenders offer VA jumbo loans
- The funding fee increases your closing costs or your mortgage payment
- You must be a veteran to use the program
How VA Jumbo Loans Differ from Conventional Jumbo Loans
Your other most common jumbo financing option is the conventional jumbo loan. While it’s the most widely known, the VA loan has many benefits over it. If you’re eligible for a VA loan, it’s usually the best choice.
Here’s how conventional loans differ:
- You’ll need a large down payment on jumbo loans, often as much as 15% to 20%.
- You must have great credit, sometimes 680+
- You can buy an investment property, whereas VA loans are only for your primary residence
- Requires Private Mortgage Insurance if you don’t put 20% down
What is Entitlement and How Much do you Need?
Your entitlement is the amount the VA will guarantee in your name. This used to be a big deal because the VA capped the amount they would guarantee, which then guaranteed the amount you could borrow.
Today, though, the VA doesn’t have a maximum loan amount. As long as you can prove you can afford the loan, the VA will guarantee it if you have full entitlement.
Full entitlement means you never used your VA entitlement or you used it but paid the loan off in full and sold the house.
The VA has two levels of entitlement:
- Basic entitlement of $36,000 – The VA guarantees 4 times your entitlement, so basic entitlement means a loan amount of $144,000. The VA recognized quickly that this wasn’t enough for veterans to buy a suitable home. So, VA added secondary entitlement.
- Secondary entitlement- This entitlement covers the rest of the VA loan (25% of the difference in what you borrowed).
If you have full entitlement, you don’t have to worry about how much you can borrow as far as entitlement is concerned, Your focus should be on the amount of loan you can afford/qualify for.
Does the VA offer VA jumbo loans?
The VA doesn’t write or fund VA loans. They set the parameters for lenders, and they insure the loan for VA-approved lenders. The VA doesn’t do the underwriting or fund the loans. The only interaction you’d have with the VA is when you pay your funding fee – the VA controls those fees.
What credit score do you need for a jumbo loan?
Most lenders let you get a jumbo VA loan with a 640 credit score, but some lenders may require a higher score. Usually, if you have other good qualifying factors, like a low debt-to-income ratio or a large down payment, you may not need ‘great’ credit.
Are jumbo loans bad?
Jumbo loans aren’t bad. They are riskier for the lender and therefore you since you take on a larger obligation, but they aren’t bad. Just like any loan, make sure you know what you’re getting. Can you afford the payment? Are you comfortable with the large loan amount?
Why are jumbo loans more expensive?
Jumbo loans cost more because they are a higher risk for lenders. When you borrow $700,000 versus $200,000, the bank has a lot more at stake. If you default on the $200,000 loan, the lender can likely sell the home easily and make most (if not all) of the money back. If you default on the $700,000 loan, the bank will likely have a much harder time selling it and making their money back. Banks usually take a larger loss on higher loans.
Are jumbo loans harder to get?
Yes, jumbo loans are harder to get because of their size and risk. VA loans are traditionally easier to get, though, and jumbo loans are no exception. While VA lenders have slightly tougher requirements, they aren’t as tough as conventional loans. As long as you have decent credit, and a low debt-to-income ratio, you should be in good hands.
Does every lender require a down payment?
No, you’ll find VA lenders that don’t require a down payment on your jumbo loan, but it works in your favor to put money down. We can’t predict how home values will react. We hope they will increase, but they don’t always. If the value decreases and you didn’t make a down payment, you could find yourself upside down.
Are reserves required for a VA jumbo loan?
Some lenders require reserves and others don’t. Typically having reserves lowers your risk, which may mean lower interest rates or closing costs, so it’s worth exploring as an option.
When is a down payment required?
You may need to make a down payment if you don’t have full entitlement. This happens if you’ve already used your entitlement and didn’t sell the house or if you defaulted on a VA loan and lost a portion of your VA entitlement. The lender will typically require a 25% down payment on the difference between the loan amount and your entitlement to make up for the risk.
Do people that served in the Reserves or National Guard qualify?
Yes, anyone who served in the National Guard or Reserves can qualify for a VA loan as long as they served for at least 6 years.
VA Jumbo Loans are a Flexible Option
If you’re a veteran and are looking to borrow more money than the standard loan amount of $548,250, you’ll need a jumbo loan.
The VA offers one of the most flexible options that is the most affordable and attractive for most VA borrowers.
VA Jumbo Loan Rates
Interest rates on VA jumbo loans are usually higher than a standard VA loan. This is because of the higher risk that is taken on by lender.
VA Jumbo Loan Eligibility
A Jumbo VA loan is available only to VA-eligible borrowers who qualify with income and credit requirements. Usually, jumbo loans require a large down payment. However, with all VA home loans the down payment is not required.
Closing costs for a VA jumbo loan can be anywhere from 2% to 3% of the purchase price. Closing costs cannot be rolled into the loan and must be paid at closing (for a purchase.. They can be paid by the seller (this needs to be negotiated within the contract), or you can be provided with a gift from a family member.