The VA loan is a mortgage loan program in the U.S. VA loans are guaranteed by the U.S. Department of Veterans Affairs. The purpose of the program is to help people purchase their own homes. Those who may apply are veterans, qualified spouses, current military service people, and reservists. The loan can be used to buy houses, condos, manufactured homes and newly constructed houses designed for single-family use.
Though the loans are not originated by the Department of Veterans Affairs, the VA does have strict guidelines concerning eligibility. A key feature of the VA loan is that borrowers can purchase a home with no down payment. This helps more people become eligible to purchase a home by eliminating the down payment barrier. The G.I. Bill of 1944 first allowed veterans the opportunity to purchase homes with no down payment.
Changes for 2020
The changes to the VA loan program for 2020 were signed into law by Donald Trump under the Blue Water Navy Vietnam Veterans Act of 2019. As of January 1, 2020, the following changes for the VA loan program are effective:
- VA loan limits are now eliminated.
- VA loan fees have gone up in 2020.
- VA funding fees will remain the same for some borrowers.
The VA’s loan limits refer to the maximum amount the VA will guarantee for those who borrowers who do not pay a down payment. In the past, limits were based on the Federal Housing Finance Agency on Conforming Loans. The previous limit was capped at $484,350 for homes in counties considered to have an average cost of living. For those who have
However, the 2019 limit for high-cost areas was $726,525. These limits were not a direct cap on the amount a person could borrow. Rather, these amounts represent the most you could borrow without submitting a down payment. If a borrower requests an amount above these two limits, then a down payment would be required. The down payment would be 25% of the difference of the county limit and the loan amount.
Though the change in 2020 now eliminates loan limits, this does not mean a borrower can borrow as much as he or she wishes. A borrower must still qualify for their home loan based on income and credit requirements set by the lender. Though the VA does not list limits, some lenders might impose limits on the borrower. Therefore, even if the VA does not impose a loan limit on a borrower, this does not mean the borrower can get a loan for whatever amount the borrower requests.
In some cases, loan limits will still apply. For instance, people who have defaulted on a previous loan and those who have more than one loan active will still be subject to loan limits.
VA Loan Funding Fees Will Increase in 2020
All VA loans will require the borrower to pay funding fees. The borrower has two choices. They can either pay the fees out of pocket or else roll the fee amount into the loan payments.
In 2020, the VA loan fees for first-use, zero down payment loans is 2.3% of the loan. This amount is an increase from the 2.15% charged to borrowers in 2019. The fees for subsequent-use loans will rise to 3.6%. This is an increase from 3.3% in 2019. The fees will remain steady for the next two years. In 2022, the fees will return to the previous 2019 fee level.
However, there are some exceptions to the rules on funding fees. Starting in 2020, the VA funding fees for the National Guard, the Reserves, and regular military service people will all pay the same fee. In previous years, fees have been higher for the Reserves and the National Guard.
Active duty military personnel who have Purple Hearts are also exempt from paying funding fees. Several other groups are exempt from funding fees, including all of the following:
- Surviving spouses of veterans who either died in service or died from a service-related disability
- Veterans who are receiving compensation from the VA for a service-related disability
- Veterans who would be eligible for compensation from a service-related disability if they did not otherwise get active duty pay or retirement pay
Purpose of the VA Loan Changes in 2020
The changes to the VA loan are intended to help fund health care benefits to specific service people exposed to Agent Orange, a herbicidal chemical used in warfare. Many of these service people have developed diseases from Agent Orange that require medical treatment.
How to Shop for a VA Loan
Some lenders have more experience working with veterans and other military service people. You should shop around. You should seek a lender that gives you the info you need to move as efficiently as possible through the mortgage loan process. Begin by getting quotes from at least three different lenders. If you’re seeking mortgage lenders in DC, contact Gregg Busch. He can answer questions you have about Washington DC mortgage rates and VA loan changes and requirements.
The changes to the VA loan program are effective for 2020, though these terms may change again in the future.