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VA Jumbo Mortgages: Determining The Down Payment

Sean Purcell and I are really figuring VA-guaranteed  jumbo loans.  We’re getting a steady stream of business from high-cost California counties.  One of the common misconceptions is that VA loans are capped at the county loan limit, like FHA and conventional mortgages.  I’m going to walk you through the formula to determine the required down payment and maximum loan amounts for VA jumbo home loans.

STEP ONE:

___Lesser of purchase price or appraised value +

___Add the 100% financing VA funding fee =

___Gross loan amount

STEP TWO:

___ VA county loan limit * (.25) =

___ Veteran’s maximum entitlement * 4 =

___ Maximum VA guaranty (including funding fee)

STEP THREE:

___ Gross loan amount (from step one) * (.25) =

___ Required Guaranty -

___ Veteran’s maximum entitlement (from step 2) =

___ Required down payment

STEP FOUR:

___ Purchase price -

___ Required down payment (from step three) =

___ Base loan amount (before adding funding fee) +

___ Applicable LTV-adjusted VA funding fee =

___ Total loan amount after down payment

Let’s try a $650,000 purchase price in Maricopa County, where the county loan limit is $417,000, for a first-time VA loan user.

STEP ONE:

$650,000 (purchase price) +

$13,975 (2.15% funding fee) =

$663,975 (gross loan amount)

STEP TWO:

$417,000 county loan limit * (.25)=

$104,250 (maximum entitlement) * 4 =

$417,000 (maximum VA guaranty)

STEP THREE:

$663,975 (gross loan amount) * (.25) =

$165,993 (required guaranty) -

$104,250 (maximum entitlement) =

$61,744 (required down payment)

STEP FOUR:

$650,000 (purchase price) -

$61,744 (required down payment) =

$588,256 (base loan amount) +

$8823 (applicable LTV-adjusted funding fee) =

$597,079 (total loan amount after down payment)

Don’t be confused by the entitlement and loan amount; just follow the formula and any VA-approved underwriter will accept your figures.  As you can see, the required down payment, for this example,  is only 9.4%.  I’d probably round it up to an even 10% down payment so that the funding fee would drop to 1.25% instead of 1.5%.  Putting down an extra $3900 saves the veteran $1625 in the funding fee.

Very few jumbo loan programs allow for a down payment of 10% with no mortgage insurance.  This makes the VA-guaranteed jumbo mortgage tough to beat.  The first question you ask for  any loan application should be…

Did you serve ?

It could make a huge difference.  Good luck and good funding.

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  • The Sky is Falling… and So Are Loan Limits
  • Other types of credit may be feeling the crunch, but home mortgages are still readily available

  • 7 comments

    7 Comments so far

    1. Rick Philp July 29th, 2009 5:59 am

      Very good information. Does VA refinance?

    2. Brian Brady July 29th, 2009 6:46 am

      The VA does offer refinances, Rick. A VA to VA loan can be refinanced without regard for the value of the home. A conventional (or FHA) to VA refinance allows up to 90% of the appraised value with an unlimited amount of subordinate liens. Jumbo refinances have use a somewhat similar formula to the one I explained above

    3. Sean Purcell July 29th, 2009 9:53 am

      Rick, also keep in mind that VA does not treat a rate/term refi differently from a cash out refi; they are both just refinance loans limited to 90% ltv unless they are IRRLs (the VA to VA mentioned by Brian) or you are refinancing a construction loan.

    4. Tim and Julie Harris July 29th, 2009 7:25 pm

      Thanks Brian for posting this…..I learned a few things.
      Tim

    5. David Losh July 29th, 2009 11:29 pm

      What is a 2.5% funding fee?

    6. Brian Brady July 30th, 2009 7:29 am

      David,

      The VA doesn’t charge mortgage insurance; it charges a “funding fee” which is a one time charge to guarantee the loan for thr lender. They allow for it to be financed.

      For 100% loans, a first-time user pays 2.15%, a serial user pays 3.3%. For 95% loans, a veteran pays 1.5%. For 90% loans and below, the funding fee charged is 1.25%

    7. David Losh July 30th, 2009 2:24 pm

      Who gets the funding fee? Does it go back to the VA?