Purchasing a home is a major dream for most Americans, and it’s much easier if you’ve proudly served our country or are the widow of a service member. VA loans are guaranteed by the federal government to help veterans and their surviving spouses afford homeownership; they boast competitive interest rates and lower upfront costs than conventional loans, making them a perfect thank-you for those who have defended our country.
The mortgage process opens up a lot of questions, and you may be wondering about the difference in terms between a standard VA loan and a jumbo loan. Which is best for your circumstances, and how do their conditions vary? Today, we’ll explore everything you need to know about the difference between these two products so that you can make a well-informed decision about your needs.
VA Loans Are Broken Into Two Categories Depending on the Loan Amount
While you’ve researched the mortgage process, you may have heard the terms “conforming loan” and “nonconforming loan” in regard to conventional loans, those that are not guaranteed by the government. VA loans have these same two categories, both pegged to the current conforming loan limit set by the Federal Housing Finance Administration (FHFA). Conforming loans are those that are at or below the yearly threshold of the mortgage amount that the FHFA will insure; in Arizona in 2023, this number is $726,200.
Nonconforming loans, also known as jumbo loans, are those mortgages above that threshold. In short, a standard VA loan is one for less than $726,200, and jumbo VA home loans are ones that are above that amount.
Those who have worked diligently to grow their wealth over time might run the numbers and find that they can definitely afford a jumbo loan; for those who have served, the decision to seek a VA jumbo loan is a simple one, given that it means they can purchase a larger luxury property with more favorable terms.
When considering the nuances between Standard VA Loans and Jumbo VA Loans, it becomes evident why collaborating with a mortgage broker could offer a distinct advantage in navigating loan complexities and securing favorable terms.
Both VA Loan Types Have the Same Requirements in Terms of Service and Home Type
To access any type of VA loan, including a jumbo one, you need to have served in the military for a certain period of time or be the surviving spouse of a military member who died as a result of serving. This translates to 90 days of consecutive service in wartime, 180 days of consecutive service in peacetime, or serving in the National Guard or Reserves for at least six years. A person accessing a VA loan, because their late spouse served, does not need a military background.
There are also stipulations in regards to what type of home you can buy. Neither form of VA loan can be used to purchase an investment property: it must be your primary residence, and you have to move into the home within 60 days of purchase.
You Must Have Full Entitlement to Access a Jumbo Loan
In regards to VA loans, entitlement refers to how much money you can borrow through the Veterans Affairs program; only those with full entitlement can access funds above the conforming loan limit. In order to receive full entitlement, you must either have never taken out a VA loan, sold the previous home with the loan, or repaid the VA in full after a short sale.
You Need a Higher Credit Score and May Require a Down Payment for a Jumbo VA Loan
One of the benefits of a standard VA loan is that you can purchase a home with a lower credit score, often only 580, but this is not the case for larger VA loans, which necessitate a higher credit score. Each lender varies on the minimum credit score they will accept for VA nonconforming loans, but the average that a lender will accept is about 620. If you have a higher credit score of 640 or more, you will not need to provide a down payment on a property that is $1.5 million or less.
Regardless of your credit score, you will likely need to put money down on more expensive properties, such as those in the $2 million range. While it may not be required, those accessing less expensive loans are still encouraged to provide a down payment, as this lowers your monthly mortgage expenses and makes it easier for you to budget over time.
In order to facilitate the mortgage application process, it’s crucial to gather the necessary documentation, ensuring you have all the required paperwork in place.
Like other jumbo loans, these VA loans may also have higher interest rates, as they are still risky despite the government’s guarantee.
VA Jumbo Loans Have Benefits and Drawbacks Which Must Be Considered Carefully
Jumbo loans can be a great option for those with a high income who want to buy a large property, such as a ranch in Arizona, to spread out and relax. However, they do still carry risk, which is why it’s essential that you talk to a qualified financial advisor about your situation before pursuing a jumbo loan through the Veterans Affairs program.
If you find that you’re qualified and approved, you can finally move on to the best part of accessing any loan: picking out the best home possible to live out your American Dream.
Interest Rates Can Vary Between Standard and Jumbo VA Loans
When considering VA loans, it’s crucial to understand the potential interest rate variations between standard and jumbo VA loans. Although the VA itself doesn’t set the interest rates for VA-guaranteed loans, the lenders that offer these loans do. Generally, with most types of loans, jumbo loans tend to have slightly higher interest rates than their standard counterparts.
This is because jumbo loans represent a higher risk for lenders given the larger amount being borrowed. However, VA jumbo loans often have more competitive interest rates compared to conventional jumbo loans due to the guarantee.
Still, it’s possible that when comparing a standard to a jumbo VA loan from the same lender, the jumbo loan might come with a slightly higher rate. Borrowers should always shop around and compare interest rates and terms from multiple lenders to ensure they are getting the best deal for their unique financial situation.