Going Jumbo: California VA Loans Above County Limit

Summary: Eligible borrowers can qualify for a VA jumbo loan in California, which is one that exceeds the loan limits for the county. In such cases, the borrower generally has to make a down payment that’s 25% of the amount above the limit. But it’s still a smaller down payment than a conventional mortgage loan of that size.

It’s a little-known fact that eligible borrowers can obtain a California VA loan above the stated limit for the county in which the house is located. A down payment is generally required in such cases, but it’s certainly possible to to this. Here’s what you need to know about going “above the limit” with a California jumbo VA loan.

Understanding VA Loan Limits in California

Most mortgage loans have certain size limits associated with them, and that goes for the Department of Veterans Affairs (VA) home loan program as well. The VA uses the same conforming loan limits established by the Federal Housing Finance Agency. These caps vary by county and are based on median home values.

But here’s the important thing to understand. The VA does not limit the amount of money you can borrow from a lender, when using this loan program. They just put a cap on the amount they are able to guarantee, which can indirectly affect the amount you’re able to borrow.

As it states on the Department of Veterans Affairs website: “The loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a down payment.”

Notice the last part of that sentence, “without making a down payment.” This is the key to going above the VA loan limit with a jumbo mortgage. You can do it, as long as you’re willing to make a down payment. More to follow on this.

Going Above the Limit With a Jumbo Mortgage

You might be able to borrow more than the limit for your county by using a VA jumbo loan. Anytime you hear the word “jumbo” in a mortgage context, it means that the loan exceeds the limits for the county where the home is located. Many borrowers don’t even realize there are jumbo VA loans in California, which is why we are blogging about it.

Let’s look at an example with some specific numbers. The 2017 VA loan limit for the San Francisco Bay Area is $636,150. Generally speaking, that’s the most a person could borrow in the Bay Area without having to make a down payment.

VA loans offer 100% financing for borrowers who stay within the limits mentioned above. That’s their most popular feature, and it’s why many borrowers do stay within the limits. But for this scenario, let’s say I wanted to borrow $800,000 to buy a home in the Bay Area. For this, I would need to go above the VA loan limits. I would need to use a jumbo mortgage, and it would likely require a down payment on my part.

Down Payment Requirements: The 25% Rule

The general rule for California VA jumbo loans is that the borrower must make a down payment equaling 25% of the difference between the loan limit and the purchase price.

In our Bay Area scenario, I’m borrowing $800,000 to buy a home in Alameda County. The VA loan limit for the county is $636,100. The difference between these two amounts is $163,900. Twenty-five percent of this difference ($163,900) would come to $40,975. That would be down payment.

So in this scenario, I could obtain a jumbo VA loan in California — for an amount that is above the limit for my county — by making a down payment of $40,975.

That’s still a lot less than what most conventional home loans would require. And that’s the primary benefit of using the VA jumbo loan strategy to buy a higher-priced home in California. You can minimize your upfront out-of-pocket investment.

This is generally how it works for VA-guaranteed mortgages. Please contact us if you have questions about this subject, or if you’d like to get pre-approved to see how much you can borrow. And speaking of pre-approval…

The Importance of Getting Pre-Approved

This article underscores the importance of getting pre-approved for a VA loan, before you start shopping for a home. It’s possible to obtain VA jumbo mortgage financing for an amount that’s above the limit in your county. But the actual amount you are able to borrow will depend on your income, debts, and other factors.

This is where mortgage pre-approval comes into the picture. You can think of it as a financial pre-screening process to help you prepare for your house hunt.

During pre-approval, your lender will evaluate your income and debt situation to determine how much you are able to borrow. This is really what determines your borrowing capacity, more so than the VA loan limits. In short, you must have the financial ability to repay your mortgage obligation. Pre-approval helps determine this.

Related: How much can I afford with VA?

The primary benefit of getting pre-approved is that you can go into the market with a specific price range in mind. You’ll be able to shop confidently within that price range. Also, sellers will be more inclined to accept your offer, if it comes with a pre-approval letter attached.