Over the decades since the Veterans Administration (VA) began guaranteeing 100% of veteran loans against default, the VA has posted a maximum loan limit. When I started selling real estate in April 1990, the VA loan limit for the Washington DC metro area was $184,250. Back in those days a buyer could buy a 2-story, 4 BR, 2.5 BA, 2-car garage house on 1/4 - 1/2 acre lot, within a 45 minute commute from the Pentagon.
As home prices increased over the decades, the VA increased the amount of the loan limit. Those days are over. Here's a quote from the VA website:
"If you have remaining entitlement for your VA-backed home loan, find out the current loan limits and how they may affect the amount of money you can borrow without a down payment. As of 2020, if you have full entitlement, you don’t have a VA loan limit."
Consider an O-6 retiring from the armed forces at 26 years. Her basic pay $12,030; take 50% for retirement pay of $6,015 per month. She is immediately recruited by a Beltway Bandit at $144,000 per year, or $12,000 per month. That gives her a total of $$18,015 per month gross income.
The VA will allow her to have a monthly payment of 41% of her gross pay. That qualifies her for a $7,386.15 house payment. When we subtract $1,000 a month for real estate taxes and $95 per month for hazard insurance, and $180 per month for home owners association (HOA) dues, she can qualify for a house payment of $7,011.15 principal and interest. A house with that monthly payment would price out at $1,717,400 with no down payment at a 2.75% interest rate (2.96% APR).
It's been my experience as a REALTOR and a loan officer that the typical 26-year O-6 buys a house at a price half of their max qualification. However, a colleague of mine recently helped a retiring O-8 who had a $250,000 a year job waiting for him buy a $1,750,000 house, VA no money down.
He could have paid CASH for the house, or put down a sizeable down payment. Why didn't he do that? He would be paying 2.75% to borrow the money. Meanwhile his cash is invested in a portfolio of stocks and mutual funds that is growing at a rate 12.75% per year. Why would he cash out $1,750,000 earning 12.75% to save 2.75% on his mortgage? He would be losing 10% per year on his investments, $175,000 lost in potential earnings.
As my Dad often said, "Buy houses with cheap OPM* and keep your cash invested for a higher return."
*OPM: Other People's Money