New law removes VA home loan limits


New law expanding VA disability benefits to more veterans who were exposed to Agent Orange herbicide during the Vietnam War will change VA home loan limits for all veterans.

VA real estate loans are one of the best benefits available to veterans. The program allows honorably released veterans to buy a home without a down payment, which civilians only wish they could do. But now the program is about to get even better.

Most of Public Law 116-23, the Blue Water Navy Vietnam Veterans Act of 2019, who became law on June 27, 2019, discusses the extension of VA disability benefits for Agent Orange exposure to those who served on ships off the coast of Vietnam during the war. Previously, only those serving in the country or in inland waters were eligible for disability benefits.

So what does this have to do with VA home loans?

To pay for expanded disability benefits for the approximately 90,000 veterans who may now be eligible, the VA is removing some restrictions on the VA’s home boundaries.

Currently, VA limits the price of a home that you can buy without a down payment to $ 484,350 for most of the country. This amount is based on limits set by the Federal Housing Administration (FHA) and changes annually.

There are several places in the country where this limit is higher, mainly in urban areas and in Alaska and Hawaii. But, for most of the country, if you currently want to buy a home that costs more than the FHA limit, you can’t use a VA home loan without paying a down payment, and that down payment should usually be enough to cover. 25% of the difference between the purchase price and the FHA limit. This means that if you buy a home for $ 500,000, you have to put down a down payment of $ 3,912 ($ 500,000 – $ 484,350).

New VA home loan limits coming January 1, 2020

As of January 1, 2020, when the new law takes effect, the VA will not cap the amount of a loan a veteran can get without money, paving the way for veterans to buy higher value homes. . Of course, the lender can always issue a cap and refuse a large loan. But the denial will not be due to VA home loan rules.

A VA home loan is not the VA that lends you money. Instead, the Department of Veterans Affairs “Guarantees” to a lender that you, as a veteran, are a good credit risk. This guarantee allows you to obtain a mortgage without having to pay a down payment.

The average lender requires a down payment of 20% of the purchase price of the house before granting you a mortgage. According to Zillow.com, the average home value in the United States is around $ 227,000. This means that veterans, unlike civilian buyers, can get a home without paying up to $ 45,000 in cash. And now this VA guarantee can go a step further.

The other change that comes with the new law will affect fees for some veterans. VA charges most veterans a “fundraising fee” when a VA loan is issued. Veterans receiving VA disability benefits are exempt from funding fees. For example, the finance charge for an active-duty veteran using a VA home loan for the first time will drop from 2.15% of the purchase price to 2.35% of the price on January 1, 2021. (There are different financing costs depending on the type of loan and the borrower’s situation.)

The change, however, eliminates finance charges for some users. Purple Heart recipients still on active duty will no longer be subject to fundraising fees as of January 1.

The VA and Congress hope that the increase in money from a combination of increased fundraising fees and eliminated loan limits will be enough to cover disability benefits for Vietnam Veterans and their children who are suffering from the disease. long-term health problems from exposure to Agent Orange. . It remains to be seen. However, for many veterans looking to get a new home loan, especially those living in high cost areas, the process just got easier.

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This article has been updated to clarify the deposit required by current rules.

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