Official guidelines from the Department of Veterans Affairs (VA) state that the maximum VA loan limit for California is $636,150, for 2017.
But that number can be deceiving. That’s actually the most the department is willing to guarantee. But the maximum VA loan size in Californian that you can actually borrow might exceed this limit, as long as your income supports the higher amount.
This will make more sense if we look at how VA loans work, and who is involved in the lending process.
How the VA Loan Program Works
The Department of Veterans Affairs does not lend money directly to borrowers. Rather, they guarantee loans that are originated by mortgage lenders in the private sector. You get the money to buy a home from a lender, and the lender gets some degree of protection from the federal government (through the VA).
This insurance is designed to protect lenders from losses that could result from borrower default. Because of this government backing, eligible borrowers can buy a home with no down payment whatsoever, and also without mortgage insurance. And those are two big benefits.
Maximum Loan Size for California
There are loan limits associated with this program. But they don’t necessarily restrict the maximum amount a person can borrow with a VA loan. They have more to do with the maximum liability that the federal department can accept.
The Department of Veterans Affairs website states: “VA does not set a cap on how much you can borrow to finance your home. However, there are limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend you. The loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a down payment.”
Those last few words (“without making a down payment”) are the most relevant part of the quote. Borrowers who want to take advantage of the 100% financing available with VA loans — and don’t want to put any money down — are usually held to the official loan limits. But borrowers who are willing to make a down payment can exceed those limits, while still enjoying some of the advantages offered by the VA program.
So in a sense, there is no maximum VA loan amount in California that applies to all borrowers. Borrowers with sufficient income can exceed the county-specific loan limits mentioned above, if they’re willing to bring some down-payment funds to the closing table.
The 25% Rule of Thumb
There’s a 25% rule in effect for most of these scenarios. Borrowers who exceed the VA loan limits generally have to make a down payment that is 25% of the amount above the limit (not to be confused with 25% of the purchase price). But that’s still probably less than you’d be required to put down on a conventional mortgage loan of equal size.
Here’s an example. A borrower with full VA entitlement wants to buy a house in Riverside County, where the loan limit is $424,100. The purchase price of the home is $524,100, which is $100,000 higher than the county limit. In this scenario, the borrower would probably need to make a down payment equal to 25% of that 100K difference. This would come to $25,000. That’s generally how it works.
Again, this is all income-dependent. Borrowers must have sufficient income to afford the monthly payments on the mortgage loan, along with all of their other recurring debts (credit cards, car payments, etc.).