Can You Borrow More Than Your Home Is Worth?

Small bungalow style house

How much can you borrow using your VA home loan benefit? The amount of your loan is determined by comparing your monthly payment to your monthly income along with your entitlement amount.  Loan limits in your area will be a factor in determining the amount of money you can borrow.

Two things to know about your VA home loan benefit

  1. VA Loans require zero down payment.
  2. If the sales price on your home is $200,000, you can finance the funding fee for your loan.

Can you borrow more than that if you can afford it? Can you borrow $220,000 when the sales price is $200,000?

To answer this question, let’s look at how lenders determine the loan amount.

Lenders look at current market value. You’ve signed a sales contract on a $200,000 home and the seller accepts your offer. The VA lender then orders an appraisal. The appraiser will research recent sales of similar properties in the area to support the $200,000 value.  By law, the appraiser is required to provide at least three sales that have closed within the previous year, preferably within the last six months.

The appraiser considers the prices and the square footage of the homes and adjusts his appraisal based on features and characteristics of the property being appraised. If, for example, three homes in your neighborhood are 2,000 square feet in size and sold for $200,000, the price per square foot is $100.

If your property is similar to the others and your value works out to $100 per square foot, your property should appraise at the $200,000 contract price. What if the appraiser can’t find any sales that support a value of $200,000, and the appraisal comes in low at $180,000? In this case, you must make up the difference or otherwise renegotiate the price of the home. Why?

Lenders establish value based upon the lower of either the sales price or appraised value. Conversely, should the appraisal come in at $210,000, the lender will use the lesser of the two values. In this instance, $200,000. You don’t have access to the “extra” equity, but you know you got a good deal on the property.

What else can I finance with my VA home loan benefit?

Along with the funding fee, VA buyers can typically finance up to $6,000 worth of qualified energy efficiency improvements. The VA feels that such improvements not only increase the value of the property but also keep utility bills lower, making the home more affordable.

Allowable improvements can include:

  • Heating and air conditioning systems
  • Solar panels
  • Smart thermostats
  • Storm windows and doors
  • Caulking
  • New insulation
  • Heat pumps

Follow your VA lender’s advice when adding these improvements. You may need to provide documentation that identifies the types of energy upgrades you are making, product brochures, contractor quotes, as well as an energy audit.

The VA also has a renovation loan product that allows qualified buyers to finance the cost of renovation work and home improvements.

So, can you borrow more than your home is worth? Not really, except for the energy improvements and the funding fee. Even the renovation loan product is based on the projected market value of the home after repairs are completed.

But that’s not a bad thing. If your home is worth $200,000 and you somehow managed to borrow $220,000  and then decided to sell your property, you would likely owe more than the home was worth. If someone wanted to buy your property in this example, you would have to pay down the difference or resort to a short sale.

Take the Next Step

If you're ready to move forward, or just want more information, the first step is to get no-obligation rate quotes.


Chris Birk is the Director of Education for Veterans United Home Loans and the author of The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits. More than 250,000 people follow his VA Loans Insider community on Facebook.

Story Continues