The New Rules of VA Home Loans for 2020
If you are an honorably discharged veteran of the US military or active duty personnel considering the purchase of a new home in 2020, recently announced changes to the Veteran’s Administration home loan rules that will increase what you’re allowed to borrow as long as the loan amount in within investor guidelines.
As of January 1, 2020, as a part of the Blue Water Navy Vietnam Veteran’s Act of 2019, VA home loan amounts will no longer be capped. This means those who qualify for a VA home loan can apply for loan amount to purchase a home. Previously, VA home loans were capped in line with Federal Housing Finance Agency (FHFA) loans. However, the no-price-cap change does come with an increased fee. Under the new terms, the “funding fee” of a VA home loan will move from 2.15% of the loan amount to 2.30% of the loan amount. Even with the funding fee increase, be assured the VA home loan remains the most affordable home loan available.
Unlimited VA Home Loan Amounts, with a Caveat
Until January 1, 2020, VA home loans are capped at $484,350 across most of the country. The exact dollar amount changes somewhat each year, has some regional variability, and is re-adjusted as needed by the Federal Housing Finance Agency (FHFA). Currently, VA home loan customers are allowed to borrow more than the parameters allow, but to do so, the lender will require the borrower to make a down payment.
Since January 1, 2020, the cap is removed, and no down payment is required. However, even under the no-cap parameters, the sky may not be your limit. While it’s called a VA home loan, the VA is not the organization lending you the money. The VA merely backs the loan assuring the lender full repayment in the event of a default. As such, the VA does not have control or say under the loan approval process. Under the new law, the lender retains the right to cap the amount based on your application details and income.
VA Home Loans Avoid PMI Charges
Private mortgage insurance (PMI) can cost traditional borrowers a small fortune. With a VA home loan, you’ll never pay one penny of PMI. That savings is among the most significant advantages of applying for a VA home loan.
Under the terms of a conventional loan, borrowers are required to place 20% of the home loan amount down to avoid PMI payments. According to the United States Census Bureau, the average cost of a home purchased between January and September of 2019 was $374,911. For an average home sale in that period, you would have needed $74,982 down to avoid PMI payments. In lieu of the PMI applied to conventional loans, VA home loan borrowers pay the funding fee, which is significantly often less, costing just 2.30% of the loan amount.
VA Home Loan Funding Fee and Second Loans
The exact amount of your funding fee will be dependent on the amount of your down payment (if you make one) and whether you currently have a VA home loan. For first time borrowers, referred to as a “first-use” loan, the rate will be 2.30%. The fee for “subsequent use loans” will be 3.6% of the loan amount. The subsequent use rate will remain in place for two full years. After this, the rate will return to the current level (until October 2029) and then drop further after that.
VA Home Loan Funding Fee Waivers
Under previous VA home loan parameters, the funding fee could be a variable percentage rate that depended on your service in the armed forces. Under the new version, the VA home loan funding fee will be identical for regular military, National Guard, and Reserve members. However, the funding fee does include a full exemption that applies across all the services. Purple Heart recipients still on active duty will no longer be subject to the funding fee under the new law.
Blue Water Navy Vietnam Veteran’s Act of 2019
Why the change?
The Blue Water Navy Vietnam Veteran’s Act of 2019 was passed to address the expansion of disability benefits to soldiers who were affected by exposure to Agent Orange while serving on ships located off the shore of Vietnam during the war.
Before the new law was passed, only soldiers who served in-country or on inland waters were eligible for certain benefits. The new law provides benefits to approximately 90,000 additional veterans who served on coastal ships.
To assist in funding these expanded benefits, the Veteran’s Administration is removing restrictions on VA home limits and increasing the funding fee. While funding the expanded benefits was the primary reason, those who qualify for the VA home loan program will also benefit from ancillary reasons. These include increased buying power, more homes being applicable to the program, and reduced overall cost of owning a home for veterans and active duty personal.
Loan Officers Serving Those Who’ve Served
The Blue Water Navy Vietnam Veteran’s Act of 2019 offers a lot of opportunity as it pertains to the VA home loan product. But, like any loan, it’s wise to have a guide. If you want to get the most out of the new VA home loan program and understand the critical details, you’ll want to work with a professional loan officer. You can find one right now from Summit Mortgage. Our loan officers will guide you through the program, explain fees and monthly payments, tackle topics like escrow, answer all of your borrowing questions, and help you with key details like determining how much home you can afford.