How VA Loans are Affected by New Laws

New Law Affects VA Loans

The VA Home Loan has long been a tremendous benefit of serving in the military, enabling qualifying service members and veterans to purchase homes without having to front a down payment. Thanks to a bill that was signed into law recently, this benefit is now more appealing than ever.

On June 25th, the Blue Water Navy Vietnam Veterans Act of 2019 (now Public Law 116-23) was signed by the president. It primarily addresses the expansion of VA benefits for those serving in ships off the coast of Vietnam who were exposed during the war to a harmful herbicide, Agent Orange.

Awesome news! But what does that have to do with buying a home?

In order to fund the additional services for the approximately 90,000 veterans (who weren’t previously eligible for benefits because they didn’t serve in-country during the war), previous versions of the bill considered raising the funding fees for VA Loans to offset the rise in the cost of services. Thanks to efforts by the National Association of Realtors^® and others, in lieu of raising funding fees, the previously imposed lending limits have been removed instead.

The VA Loan benefit is available to qualifying service members and veterans and allows for a zero down payment loan backed by the Veterans Administration. The VA isn’t providing the mortgage, rather stating to lenders that they will guarantee, or “back,” veterans and service members for up to 20% of their loan. This essentially negates the need for a down payment or private mortgage insurance (PMI). There have historically been limits imposed as to how much the VA would guarantee on the home price (one-fourth of the total price up to the stated limit), but starting January 1, 2020, those limits will no longer exist.

Historically, the VA Loan cap limit has been a predetermined amount, which has changed annually and was based on limits set by the Federal Housing Administration (FHA). For 2019, the VA Loan limit is $484,350 for most of the country, with some “jumbo” rate counties in higher cost states like Hawaii, Alaska, and Washington, D.C. If someone eligible for the benefit wanted to purchase a home for more than the allowed limit, he or she would need to pay 25% of the difference between the area’s limit and the purchase price, regardless of what personal credit or income would otherwise allow. Starting next year, VA Home Loan buyers will no longer be restricted to a loan limit set by the VA for a zero down payment loan.

Another interesting, yet easy-to-miss item inserted into this law is regarding the funding fees. While funding fees for certain types of buyers increase slightly (0.35 - 0.5% in most cases), a new category of folks are now exempt from the funding fees. Veterans receiving disability benefits have often been exempt from the fees, but now actively serving Purple Heart recipients may also have the funding fee waived. This is great news for active-duty buyers who haven’t yet gone through the disability rating process upon separation from service!

The limit cap removal also frees up active-duty military buyers to purchase a second home without needing to sell their first home in a rush to free up enough space in their VA Loan entitlement, which is often the case. According to Rosemary Buerger, Realtor^® with Coldwell Banker Advantage-Cameron and president of Longleaf Pine REALTORS, “The increased limits will allow second home purchases with little to no out-of-pocket cost. This allows a service member to purchase another home while maintaining a home as a rental at another base.”

While we have a solid six months to realize the full scope of this new law, it will still be imperative that military home buyers seek out and work with agents and lenders who are fully versed on the revisions to this benefit. This policy change has the potential to present an unprecedented opportunity for home buyers in the coming years and to fund much-deserved benefits for our elder generations of Vietnam veterans. It’s a win-win!