If you’ve served in the military, this year marks the start of some big mortgage loan changes to put on your radar.
Veterans and active duty members will have more borrowing power, but will pay higher fees for new VA home loans in 2020.
The changes are part of the Blue Water Navy Vietnam Veterans Act of 2019, which came into effect on January 1, 2020. In addition to extending disability benefits to more Vietnam War veterans exposed to the Agent Orange, the new law eliminates VA loan limits for borrowers fully entitled to VA loans. It also increases VA financing costs for most borrowers. (Fees decrease slightly for National Guard and Reserve members.)
VA home loans are a benefit for current and veteran military personnel. They have competitive interest rates and generally no down payment requirements, among other benefits. VA loan limits are the maximum loan amount that the Department of Veterans Affairs can guarantee without borrowers making a down payment. VA financing fees are one-time fees that borrowers pay in lieu of mortgage insurance to help cover government costs to secure loans. If a borrower defaults, the VA reimburses the lender for part of the loan.
No VA home loan limit in 2020
“The removal of loan limits is huge for veteran and military buyers across the country, and it follows another great year of VA lending,” said Chris Birk, director of education at Veterans United Home Loans. The VA guaranteed 624,544 loans in fiscal 2019, an increase of 2% from the previous fiscal year, according to data from the Department of Veterans Affairs.
Related: Here’s the # 1 reason military veterans are denied a VA mortgage
“Veterans living or stationed in more expensive real estate markets can extend the zero-down purchasing power of their advantage in ways they never had before,” said Birk.
Removing loan limits does not mean unlimited borrowing power without a down payment. You will still need to have sufficient income and meet the credit requirements of a lender to be eligible for the loan amount.
Loan limits will still apply in 2020 to veterans who have one or more active VA loans or who have defaulted on a previous loan, Birk says.
These VA loan limits are the same as those set by the Federal Housing Finance Agency on compliant loans. The limit in 2020 is $ 510,400 in a typical U.S. county and higher in expensive housing markets, such as San Francisco County.
If you are subject to VA loan limits, the lender will require a down payment if the purchase price is greater than the loan limit. The exact deposit you will pay is determined by a formula that takes into account your entitlement and the price of your accommodation.
Increase in VA financing costs
The VA finance fees you pay in 2020 will depend on your down payment amount and whether you’ve had a VA back-to-back loan before. If you haven’t, this is a “first use” loan, and if you have, it is a “later use” loan. You can pay the costs up front or transfer the cost into the loan.
The fee for first-use loans without forgiveness is 2.3% of the loan amount in 2020, compared to 2.15% for active duty military and veterans in 2019. The fees for future use loans will be 3.6% of the loan amount, compared to 3.3%. These fees will remain in place for two years, return to 2019 levels from 2022 to September 30, 2029, and then decrease further thereafter.
The fundraising fee increase is smaller and shorter than previous proposals, says Birk. “It is essential that the VA loan remains affordable.”
Other changes to VA financing fees
The Blue Water Navy Vietnam Veterans Act of 2019 made a few other changes to fundraising fees. From 2020, the rates will be the same for the main branches, the National Guard and Reservists. Currently, members of the National Guard and Reserve pay slightly higher fees.
Also see: Renting is more affordable than buying in almost 50% of these housing markets – and they tend to have one thing in common
Additionally, active duty members who received a Purple Heart are now exempt from fundraising fees.
Buy a VA loan
Not all lenders offer VA loans, and of those who do, some have more experience working with the military and veterans than others.
“There is a huge variation, depending on which lender you go with,” says Anthony Powell, COO for AAFMAA Mortgage Services LLC in Fayetteville, North Carolina. “Going to the first bank you think of might not be the best option. “
Requirements for borrowers and mortgage rates vary among lenders. For example, the US Department of Veterans Affairs does not require a minimum credit score for VA loans, but lenders can set their own thresholds.
Try to get quotes from at least three lenders, and look for one that provides the information and help you need to understand and move through the mortgage process as smoothly as possible.