2 Big Changes to Know About VA Home Loans

2 Big Changes to Know About VA Home Loans

The VA home loans program is by far one of the most beneficial programs for vets, allowing honorably discharged veterans to buy a house without a down payment. That’s right, civilians: without a down payment! But it’s about to get even better.

The Blue Water Navy Veterans Act of 2019 became law, expanding VA disability benefits to more veterans who were exposed to the herbicide Agent Orange during the Vietnam War. To pay for the expanded disability benefits for the approximately 90,000 veterans who may now be eligible, the VA is removing some restrictions on VA home limits.

Currently, the Federal Housing Administration (FHA) limits the price of a home you can buy without a down payment to $484,350 for most of the country save for some urban areas and Alaska & Hawaii (but that number changes every year). So, if you currently want to buy a house that costs more than the FHA limit, you can’t use a VA home loan without having to pay a down payment. That down payment usually has to be enough to cover 25% of the difference between the price of the home you want and the FHA limit. (Meaning if you buy a $500,000 house you have to come up with a cash down payment of $3,912 [$500,000 – $484,350]).

Now that it’s 2020, the new law is in effect and the VA no longer caps the size of the VA loan a veteran can get with no money down. That doesn’t mean a lender might not put a cap on the loan you can get, but it won’t be because of an FHA limit anymore. 

You see, a VA home loan is not the VA lending you money. It’s the Department of Veterans Affairs guaranteeing to a lender that you’re a good credit risk, which allows you to get a home loan without having to make a down payment.

To give you a good idea of what a huge benefit this is, just know that the average lender requires a civilian to make a down payment of 20% of the home purchase price before they’ll give you a mortgage. Considering the average home value in the U.S. is around $244,000, that means vets are saving having to make a $48,800 cash payment before they can even consider buying a decent home. That’s a lot of dough.

There is one other change the new law brings that will affect fees for some veterans regarding the funding fees for VA loans. Veterans receiving any VA disability benefits are exempt from the funding fee. But, the funding fee for an active-duty veteran using a VA home loan for the first time will increase from 2.15% of the purchase price to 2.35% of the price on Jan. 1, 2021. (However, funding fees may differ depending on the kind of loan and the situation of the borrower.) The change, however, also eliminates the funding fee for active duty Purple Heart recipients as well.

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