This article talks about the VA jumbo loan more specifically how the VA jumbo loan compares to a conventional jumbo loan. So first, the definition of jumbo when it comes to VA is any loan amount that is above the conforming loan limit. So the conforming loan limits, they will change annually, usually around Nov. as this recording is happening right now, we’re at $548,250. So anything above that for this recording is jumbo.
When it comes to conventional financing, if you’re looking for a jumbo loan and you weren’t considering VA, you are going to most likely have to put 20% down on a conventional jumbo loan. That’s kind of how those work and the restrictions are much, much tighter than VA. Here’s what I’m going to tell you right up front, all things being equal. If you decided you were going to put a down payment for VA, which technically you are not required to, you will qualify for almost 50% higher purchase price if you’re buying a house or if you had 20% equity, you would qualify for almost 50% more loan amount. And that’s by virtue of the fact that the VA loan guidelines are very, very broad.
So here’s a quick comparison if you’re talking about the credit score, Fico score, if you want to think of another term, the credit score that you need on a conventional jumbo will be in the seven hundreds. On VA it can be in the low 600s and every lender has a different minimum credit score that they go by but conventional 700s, VA 600s. If you’re thinking about debt ratios and the debt ratio is how much your monthly payments are currently that we see on your credit report debts that you have the payments and your payment that will be generated from the loan amount including your taxes and insurance and homeowner association dues, if you have that. The conventional limit is going to be in the low 40% of your gross monthly income on VA because of the calculations we get to do.
There’s another calculation called residual income. That’s really our bible when it comes to qualifying people under VA. Conventional in the low 40s. VA is 50% and can even be higher, maybe 60% because of the calculation. So right there you can see that the conventional bucket is small and on VA it’s very, very large on how we can qualify.
As of January of 2020 with the Blue Water Vietnam Veterans Act, there is no longer a loan limit for VA. If you have full entitlement and full entitlement is if you’ve never used VA before. With that there is no loan limit. Now you can buy as much as you want with no money down for whatever amount that you qualify for financially.
We talked about the debt ratio if that’s how we’re calculating it. The lender however, is going to have a limit on how high they will go on loaning you the money. With our company right now our standard guidelines say we can loan up to $2 million with no money down if you’re buying a house. We can get exceptions to that, if we have good qualifications and parameters.
Here’s another big deal. With the conventional jumbo we need reserves. So if you have your principal interest, taxes and insurance payment on the house that you’re buying or the house that you’re financing plus whatever other homes that you have. You need to have that amount of money in a multiple in the bank when you close a loan. It could be nine months, it could be 12 months, it could be 18 months. Sometimes it varies based on your credit score on VA. With the VA guidelines, we don’t need any reserves when you’re done. Now, that doesn’t mean that that’s not the right way that you should go. In my opinion, you want to have some money in the bank. But if you’re required to have reserves over here and you’re not required to have any over here again, you can see that the VA bucket is much bigger for someone to fit in to qualify.
Another big deal with VA compared to the conventional is if you have had something derogatory happen on your credit. Derogatory would be if you had a bankruptcy, either a chapter 13 or a Chapter 7, or if you had a foreclosure on the property. So on conventional, the waiting period from something like that, depending on what it is, is four years or more and sometimes up to seven years of waiting from something bad happening to your credit. In VA, it’s as little as one year. If you’ve been in Chapter 13 for a year or more and you can get approval from the trustee, you could still do a long four years to seven years over here, as little as one year over here with VA.
And then the appraisal, here’s a big deal. When it comes to appraisals, on conventional jumbo, you do need an appraisal. With VA, you need an appraisal, but on the conventional jumbo, you might need two appraisals depending on the guidelines. So if you possibly need two appraisals over here and you only need one here, that’s a big benefit.
There’s another situation that is more beneficial in VA when it comes to appraisals and that has to do with Tidewater. So if we order the appraisal and the appraiser goes to look at the property and they’re trying to establish value and they look at it and believe that it is not going to come in at the contract price. So let’s say you’re buying a $2 million house and they look at the property and tell you that this might not come in at $2 million, it might come in at $1.9 million.
They invoke what’s called Tidewater. So they send a notification to us. We then notified the realtors. We have 48 hours to provide comparable properties back to the appraiser, so they make sure that they haven’t missed anything. Once we provide all that information, they establish their value. It’s not a guarantee that we are still going to get the value we need because value is based on comparable sales, but we have another bite at the apple to establish value.
If it doesn’t come in at value and we can ask the VA for reconsideration of value. That means that we have our staff appraisal reviewer, look at the appraisal. If everybody thinks on our end that it still doesn’t look right, we can request that the VA actually look at it and see if they will give us any more value.
So both conventional jumbo and VA jumbo are great options. But if you have military experience, you have another shot where you can actually qualify for more home easier by using VA than if you use conventional. So it’s worth a shot, your military experience, it’s very beneficial.The thing I tell people all the time is, the answer is no if you don’t ask, so just ask.
