Yes, veterans are allowed to use their VA homebuying benefits to purchase luxury homes defined as homes priced in the top 10% of the price range. The Veterans Administration recently removed their loan limits which allows a veteran to purchase a luxury home up to $3 million dollars. The lender must be willing to lend that amount based on the veteran’s income, assets, and credit qualifications.
Just like the civilian population, veterans occupy highly skilled positions while serving their country. Those skilled positions transition into high income opportunities after leaving the military for civilian life. Qualified veterans are medical specialists, software developers, engineers, skilled aviators, and information technology specialists, and successful entrepreneurs. This makes veterans potential luxury home buyers as much as any other segment of our population.
Why not use VA benefits to purchase a luxury home?
There are several misunderstandings about VA mortgage financing that may discourage home sellers and even some real estate agents from accepting it as a financing option for a home purchase. Sellers and real estate agents often think:
1. VA financing is more complicated than conventional financing
2. VA appraisal requirements are stricter than conventional appraisal requirements
3. Property condition requirements are excessive
For the most part VA collateral requirements are similar to all other types of financing. The differences are in the process. Simply put, government requirements versus civilian requirements.
Many veterans don’t fully understand their VA homebuying benefits and are unaware of the buying power that they command.
Their lack of awareness is compounded if they are working with a mortgage lender that is not up to date with VA financing options. As a result, high income veterans may be inadvertently steered to conventional financing options and leave their VA benefits untapped.
Advantages of VA Financing Versus Conventional Financing
Other than no down payment there are several additional benefits that VA financing has over a conventional mortgage for a home loan:
- VA loan limits allow for easier financing of luxury homes
- No private mortgage insurance is required
- Tax exemptions are available for disabled veterans
Increased VA loan limits
One of the best benefits of VA financing is the no down payment requirement regardless of the amount being borrowed. Other than USDA insured loans which have income and loan amount restrictions, no other type of home financing allows a veteran home buyer the opportunity to purchase a million-dollar luxury home without a down payment.
Veterans are only restricted by their mortgage lender’s guidelines which are currently as high as $3 million. In order to be approved for these loan amounts the veteran must have the income, assets, and credit to qualify for their loan.
2019 Veteran’s Mortgage Loan Limits with no Down Payment
National Conforming Loan Limits $484,350
National High-Cost Loan Limits $626,525
Before 2020, a VA home buyer purchasing a $700,000 home in a conforming area or a $900,000 home in a high-cost area would have to pay 25% of the loan amount above the loan limits shown above. Those down payments would be calculated as follows:
$700,000 - $484,350 = $215,650 over 25% = $53,913 down
$900,000 - $726,525 = $173,475 over 25% = $43,369 down
After January 2020, the Veterans Administration removed their loan limits. Today VA loan limits are only restricted by a mortgage lender’s guidelines which are currently as high as $3 million. The veteran just has to qualify for their loan amount with adequate income, assets and an acceptable credit profile.
Removing the VA loan limits has effectively made it much easier for veterans to purchase luxury homes up to $3,000,000, without mortgage insurance and no money down.
No Private Mortgage Insurance (PMI)
Private mortgage insurance is normally required on conventional loans when a borrower’s down payment is less than 20% of the sales price. Because loans with less than a 20% down payment are considered high risk by lenders, they require additional protection against default. PMI offers that protection by insuring a portion of the loan and reducing the lender’s loss in case of foreclosure.
The cost for PMI coverage can range from 0.22% to 2.25% of the total loan amount and is added to the monthly mortgage payment. PMI can also be added by paying a onetime premium but cannot be financed by adding it to the loan. On the other hand, VA loans are guaranteed by the Veterans Administration and gives the mortgage lender a 25% loan guarantee against default as long as the veteran has been granted full VA housing entitlement.
Although there is no PMI on a VA home loan, the VA will charge a veteran a VA Funding Fee. This fee can be financed by adding it to the loan and it is waived altogether if a veteran has any amount of service-connected disability. Taxes may also be exempt for a surviving spouse of a veteran whose death was service related, or a Purple Heart recipient.
What are disabled veteran property tax exemptions and how can they help?
A property tax exemption may vary by state but typically waives all or a portion of a disabled veteran’s property taxes. This is a significant benefit and can literally save a disabled veteran tens of thousands of dollars annually.
Removing the property tax liability reduces the veteran’s monthly cost of homeownership which in turn will allow a disabled veteran to qualify for a higher loan amount.
In summary, VA home financing offers a multitude of benefits to the veteran luxury home buyer. No other financing option allows for the purchase of a luxury home up to $3 million dollars without a down payment or private mortgage insurance. Disabled veterans may also be eligible to receive significant property tax reductions or the elimination of property taxes altogether.
If you are a veteran that is considering purchasing a luxury home with a sales price above normal conventional mortgage limits, you should strongly consider exploring and determining how to leverage your homebuying benefits using VA financing.
