The VA recently changed its loan limits for 2014 and issued revised numbers for certain high-cost counties across the United States. These loan limits changed for all affected VA loans beginning on February 28, 2014.

The VA announcement leads some to ask an important question--what ARE VA loan limits and how do they affect your VA loan transaction?

To begin with, it’s important to dispel a common misconception about VA loan limits--the limits do NOT place a ceiling on how much a borrower can get from the lender on a VA mortgage loan. Instead, these limits cap how much of the loan the VA will insure. The borrower and lender are free to negotiate a loan amount above and beyond this number but the borrower may be required to make a down payment or make other arrangements for the amount above the VA loan guaranty.

Let’s see what the VA official site has to say about VA lending limits.

“...VA does not impose a maximum loan amount that a Veteran may borrow to purchase a home; instead, the law directs the maximum amount that VA may guarantee on a home loan. Because most VA loans are pooled in securities that require a 25 percent guaranty, the effective no-downpayment loan limit on VA loans tends to be four times VA’s maximum guaranty amount.”

Additionally, “VA’s maximum guaranty amounts are governed by 38 U.S.C.§3703(a)(1)(C) and are statutorily indexed to the loan limits established by the Federal Housing Finance Agency (FHFA) in 12U.S.C.§1454(a)(2) for Freddie Mac. These limits are based on median house prices reported by the Federal Housing Administration each year.”

Changes in the VA loan limits as announced recently by the VA do happen from time to time. Borrowers should know that VA loans closed before the new limits take effect have nothing to wonder about--the loan is closed and the loan amount is set. But for all transactions after the effective date of the changes (February 28 2014 in this case) the new loan limits will have an effect if those limits are revised for the county you are purchasing the home in--not all counties are affected by the changes. Speak to a loan officer to learn whether your transaction is affected and by how much.