VA Jumbo Loans Explained

By Bill Lyons | Published on May 10, 2023

Veterans, active-duty service members and surviving spouses may be eligible for VA jumbo loans, a combination of a VA loan and a jumbo loan that exceeds conventional loan limits. 

VA loans no longer have limits if you have full entitlement, so you won’t have to pay a down payment, and the Department of Veterans Affairs guarantees to pay 25% of the loan amount to your lender if you default on your loan. VA jumbo loans are designed for eligible borrowers without full entitlements or those needing a mortgage exceeding a lender’s limits. 

A VA jumbo loan might be right for you if you live in a high-cost area or want to purchase a more expensive home. But what is a VA jumbo loan, and is it a good option for you and your family?

What is a VA jumbo loan?

A VA loan combines a VA loan and a jumbo loan, giving you the best of both. With this type of loan, borrowers can access homes in high-cost areas while using their VA benefits to put down as little as 0% for a down payment. 

A VA loan becomes a jumbo loan when it exceeds loan limits. Limits vary by county and how much a borrower has left of their entitlement. If you don’t have full entitlement, loan limits help determine how much you can borrow without a down payment. 

If your VA loan is considered a jumbo loan, you’ll likely have to pay a down payment. However, lenders may determine whether a VA loan is a VA jumbo loan based on the loan amount and risk level.

For example, VA loan limits can reach over $1 million in high cost-areas, but in most cases, lenders consider your VA loan a jumbo loan if it exceeds your county-specific VA limit. There is no maximum VA loan amount set by the government, so you can borrow as much as a lender is willing to give you. 

The rules for what makes a VA loan a jumbo loan vary by lender. Each lender can set its own down payment rules, but many use conforming loan limits as a baseline to assess their level of risk and determine whether a VA loan qualifies as a VA jumbo loan. 

VA jumbo loan benefits

VA jumbo mortgage loans have several advantages because they allow qualified borrowers to use their VA benefits to reduce their costs and secure a home loan.

The advantages of using this type of loan include the following.

Higher loan amounts

VA loans do not have a set maximum amount. However, lenders can deem a VA loan a jumbo loan if it exceeds conventional loan limits, allowing borrowers to access more money to purchase higher-cost homes in more expensive areas. In addition, this can prevent borrowers from needing two or more mortgages at the same time for a home.

No down payment for first-time buyers

VA loans for first-time buyers don’t require borrowers to make a down payment because they still have their full entitlements. This allows them to purchase a home with $0 out-of-pocket expenses apart from closing costs.

Traditional jumbo loans usually require a down payment, but since the VA jumbo loan is backed by the VA, borrowers can choose to put down as much or as little as they want. That said, a higher down payment can reduce your interest rate to help you pay less over the life of the loan. 

Additionally, a higher down payment can lower your VA funding fees and monthly payments by reducing the amount you need to borrow. Even a small down payment can help you save thousands of dollars throughout the life of the loan. It can help you build instant equity in your home if you end up taking out a home equity loan (HELOAN) down the line. 

No PMI

If you plan to put less than 20% down with traditional conventional loans, you’ll have to pay private mortgage insurance (PMI). PMI is a premium added to your monthly mortgage payments that protects the lender if you default on the loan. However, PMI doesn’t apply to VA jumbo mortgage loans. 

With traditional and jumbo VA loans, qualifying borrowers aren’t required to pay PMI if they put less than 20% down on a home. This can help save thousands of dollars over the life of the loan and reduce your monthly costs to make homeownership much more affordable in the short and long term. 

No prepayment penalties

Some lenders charge prepayment penalties if you pay off your mortgage earlier than the terms state. For example, if you have a 30-year mortgage and pay it off in two years, your lender might charge you for it. VA loans have no prepayment penalties, so you can pay off your home as quickly as you want. 

Competitive interest rates

VA jumbo mortgage loan interest rates are similar to other types of loans, allowing you to get competitive interest rates. Lenders typically charge lower rates for VA loan borrowers than for other types of loans. Still, since a VA jumbo loan is considered riskier for them since it offers higher loan amounts, you can expect interest rates to be similar to what they are for conventional loans but less than a true-jumbo loan. 

Interest rates depend on the lender, so we recommend shopping around to help you make the right decision. Additionally, you should apply for preapproval when you’re ready to start house hunting to get an idea of how much you can borrow and what interest rate you can expect to pay. 

Flexible credit requirements

Conventional loans typically have strict credit score requirements. However, getting a VA loan with bad credit is possible, making it easier for eligible borrowers to achieve their dreams of homeownership. For example, most loans require a credit score of at least 620, but VA loans allow you to get approved with a score as low as 500. 

Higher credit scores often equate to lower interest rates. If you have a low credit score, you may still be eligible for a VA jumbo loan, but you’ll end up paying much more in interest over the life of the loan. Most lenders offer better interest rates for borrowers with a credit score of 620, but scores of at least 740 will likely get the best possible rates. 

Lower debt-to-income ratios accepted

Your debt-to-income (DTI) ratio determines how much of your pre-tax income goes to paying off your debts to help determine whether you can repay your loan.

Most lenders want a DTI of less than 36%. This number indicates that only 36% of your income goes to paying off debts like credit card bills and student loans. However, VA jumbo loans have more flexible requirements and will typically allow higher DTI ratios of 43% or greater. 

Like credit requirements, DTI requirements vary by lender. Some may accept DTIs as high as 55%. However, a higher DTI means that you’re spending more on monthly debt, which means you might not have enough to pay your monthly premium every month. Not only can this affect your ability to get a home loan, but even if you can, you might be unable to pay your premium on time every month. 

Limited closing costs

Every mortgage loan requires closing costs, but there are some fees your lender is not allowed to charge when you get a VA jumbo loan. Non-allowable fees include real estate commissions, lawyer fees, and re-appraisals requested by the lender. However, you’ll still have to pay various fees to the lender for creating the loan. 

You’ll pay these fees at closing like any other loan, but VA jumbo loan closing costs differ from traditional home loans in a few ways. For example, lenders cannot charge you more than 1% of the loan amount for origination, processing, and underwriting. 

VA jumbo loans come with closing costs other loans don’t. For example, you must pay the VA funding fee. This fee helps fund the VA program to help other veterans and active duty service members achieve their dreams of homeownership. 

The total amount you’ll pay in closing costs varies significantly by the lender, loan amount, and location. 

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Limits of VA jumbo mortgages

VA jumbo mortgage loans are one of the best options if you qualify. However, like all home loans, they have their pros and cons. The limits and disadvantages of these loans include the following.

Loan limits

While VA jumbo loans can help you get a higher loan amount, there are often limits. Most lenders allow you to get a jumbo loan for up to $5 million if you meet their qualification requirements.

The VA doesn’t limit how much you can borrow, but lenders can determine the amount they’re willing to give you. Typically if you need a loan for more than $2 million, you may have to get multiple mortgage loans or negotiate with your lender for a higher amount. 

May still need a down payment

Qualifying borrowers with their full entitlements don’t need a down payment for a VA jumbo loan. However, those without their full entitlements must pay a down payment based on how much they have left.

If a down payment is required, you may not have to put down 20%. Because VA loans don’t require PMI, your lender can determine how large of a down payment is required based on how much of your entitlement is left. 

Property requirements

All properties must pass a VA appraisal, which differs from the lender’s required appraisal. Like traditional appraisals, the VA appraisal will help determine the home’s value for lending purposes. For example, they’ll tell a lender how much the property is worth and compare it to the loan amount before deciding whether to approve or deny your application.

However, unlike traditional appraisals, the VA requires a more extensive property inspection. 

VA home appraisals determine whether the house meets requirements—called minimum property requirements (MRPs)—put in place to protect veterans from buying unsafe or unhealthy homes. While this appraisal may sound like it can prevent you from getting a home loan, it’s rare for a property not to meet MRPs.

If a property doesn’t meet the minimum property requirements, the borrower can’t purchase it, which may be disappointing. However, remember, this appraisal is meant to protect you from purchasing a home for more than it’s worth, especially if it’s unsafe for you and your family. In most cases, VA home appraisals typically ensure the home has enough space for your family, proper access, and is free of hazards like asbestos. 

Additionally, they’ll look at the home structure to ensure it has a well-functioning roof and if the basement and attic are free from water and pest damage, mold, and any potential infestations like cockroaches or mice. 

An appraisal can come back lower than expected, so you’ll have to ask the seller to lower the sales price, pay the difference out of pocket or walk away from the sale.

Funding fees

Earlier, we mentioned limited closing fees on VA jumbo loans. However, unlike traditional home loan closing fees, VA loans have funding fees designed to fund the program. VA funding fees are determined based on the down payment and whether or not it’s your first time using your entitlement. For example, if it’s your first use and your down payment is less than 5%, your VA funding fee is 2.15%. 

You can find more information about VA funding fees and amounts on the VA’s website.

Potentially higher closing costs

Some closing costs are non-allowable, meaning the lender won’t make you pay them. However, jumbo loans generally come with higher closing costs because they equal a percentage of the loan value. Since VA jumbo loans are associated with higher loan amounts, you can expect higher closing costs. 

Additionally, your lender may require you to have cash reserves set aside to ensure you can make your monthly payments. Even if your lender doesn’t require cash reserves, it’s still a good idea to save enough money to pay the first few months of your mortgage premium, regardless of your loan type. 

While closing costs are potentially higher with a VA jumbo loan, there aren’t necessarily more closing costs than with a traditional VA loan—the total amount may just be higher because you have a higher loan amount. 

Not all properties may qualify

The types of properties you can use a VA jumbo loan for vary by lender. Some lenders will allow any type of property as long as it serves as your primary residence. Other lenders won’t allow you to use your loan for manufactured or mobile homes.

If you’re unsure whether your property qualifies for a VA loan, you can contact a lender to learn more about their qualifying properties. Every lender is different, so shopping around might be your best option to help you find the best one for your unique situation. 

VA jumbo loans can only be used for primary residences, so you can’t use them for investment purposes. For example, you can’t use a VA loan to purchase an apartment complex unless you plan to live in one of the units. 

Qualifying for a VA jumbo loan

Qualifying for a VA jumbo loan is similar to qualifying for a traditional VA loan. The only difference is that the loan can exceed conforming loan limits if you have your full entitlement.

However, you may need to make a down payment if you don’t have your full entitlement. Whether you require a down payment is at the lender’s discretion. For example, they may offer a loan of $1.2 million without a down payment if you have a higher credit score. However, they require a down payment for a loan worth $2 million. 

Loan requirements vary by lender, but in general, to qualify for a loan, you must meet several VA jumbo loan requirements, including the following.

Meet VA requirements

Not all veterans qualify for a VA loan. The VA has strict requirements for what qualifies borrowers for these loans.

For example, there’s a minimum active-duty service requirement of 90 continuous days for current service members, and the minimum requirements for veterans depend on when they served.

Some spouses may also qualify for the VA jumbo loan if they became widowed due to service or if their spouse has a service-related disability. You can contact the VA to learn more if you’re unsure whether you meet the minimum qualification standards. 

If you meet the VA’s requirements, you can request a certificate of eligibility (COE) and start applying for mortgage preapproval with your chosen lender. Griffin Funding can work with the VA to request your COE on your behalf and help you start the process of applying for a home loan as soon as you’re ready.

Credit score requirements

The VA doesn’t require a minimum credit score, but your lender might.

Most lenders like to see that you have a credit score of at least 620 or higher. Some lenders may be more flexible with these requirements if you can make a down payment. 

Income

Lenders must ensure you can repay the loan, so they’ll evaluate your DTI. While there’s no VA limit on DTI, your lender might set their own criteria, with the maximum percentage varying based on down payment amounts and credit score.

Cash reserves

Some lenders require you to have cash reserves to cover several months of mortgage payments. In most cases, they’ll look for at least two months of savings to determine whether you have enough reserves for the loan. 

Other VA loans 

The most common VA loan used is a purchase loan that allows you to buy, build, improve, or refinance a home. VA purchase loans are also available as VA jumbo loans, but not all lenders offer them.

In addition to VA jumbo loans, we offer several other types of VA loans to help you refinance your existing home loan:

• VA cash-out refinance: This type of refinance loan allows borrowers with existing VA loans to reduce their interest rates by replacing their current loans with new ones while taking cash out of their home’s equity. You can also refinance a non-VA loan into a VA loan for better rates and terms. Your cash-out refinance loan allows you to use your home’s equity to pay for anything from bills and other expenses to investments. 
• VA streamline refinance: Also known as the VA IRRRL streamline refinance, this loan allows you to refinance your home to save money by switching mortgage plans and payments to lower your monthly interest rate or change the terms of your mortgage. To qualify for these loans, you must have an existing VA loan, and the new loan must offer a financial benefit, such as lower premiums or interest rates. 

Applying for the right loan for you

By securing higher loan amounts, jumbo loans can help eligible borrowers purchase high-cost properties. With home prices increasing steadily every year, a VA jumbo loan can help you get into the home of your dreams without worrying about loan limits. However, VA jumbo loans aren’t right for everyone, and not every veteran or service member qualifies. 

Wondering if a VA loan is right for you? Contact us to learn more about VA loans from Griffin Funding and determine whether a VA jumbo loan is the best option for you. Our mortgage experts can answer your questions, help you get preapproved or work with you to determine your eligibility. 

References

1. “VA Home Loan Limits.” Veterans Affairs, https://www.va.gov/housing-assistance/home-loans/loan-limits/.
2. “VA Funding Fee and Loan Closing Costs.” Veterans Affairs, https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/. 
3. “Eligibility Requirements for VA Home Loan Programs.” Veterans Affairs, https://www.va.gov/housing-assistance/home-loans/eligibility/. 

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.