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VA Loan Update: Larger Loans (Still with No Down Payment)

2020-01-31

VA Loans are “getting even better,” according to Raynelle B. Hamblin, a senior mortgage underwriter with AAFMAA Mortgage Services LLC (AMS). They already provide a great benefit to servicemembers and Veterans by allowing them to buy a house with no money down, but the best is yet to come.

Under the Blue Water Navy Vietnam Veterans Act of 2019, which went into effect January 1, 2020, the U.S. Department of Veterans Affairs (VA) updated its loan features to include loan limits, funding fees, and appraisal requirements.

“With these changes, a Veteran can get a larger loan, still with no money down,” explained Stacey Daniels, Vice President of Operations at AMS. “Taken together, these are very positive changes for homebuyers who can qualify for a VA Loan.”

And those aren’t the only benefits. Here’s a deeper look into the changes made by the Blue Water Navy Vietnam Veterans Act of 2019 and how they may benefit you:

Loan Limits

The first thing to note is that private VA-approved lenders such as banks, savings and loan associations, and mortgage companies issue VA-guaranteed loans — not the VA.

To secure a VA Loan, you apply with a lender. If the lender approves you loan, the VA guarantees the loan when it closes. The guaranty protects the lender from financial loss if you fail to repay the loan.

For Veterans with full entitlement, the maximum amount of guaranty entitlement available is 25% of the loan amount. If a Veteran has previously used the guaranty entitlement, the maximum amount available is 25% of the Fannie Mae/Freddie Mac Conforming Loan Limit (CLL), reduced by the amount of entitlement previously used and not restored.

For example, if you have full entitlement available and are purchasing a home for $1,200,000 (with the CLL at $726,525), the maximum amount of entitlement available would be $300,000, as calculated here:

$1,200,000 x 25% = $300,000

Now, let’s say you have a partial entitlement where $70,000 in entitlement has been used but not restored, and you’re buying a home for $765,000, and the CLL is $724,000. The available entitlement is $111,000 as calculated here:

$724,000 CLL x 25% = $181,000

Entitlement used:            -70,000   

Entitlement available:   $111,000

Funding Fees

The VA typically charges a "funding fee” when VA Loans are issued. These fees vary depending on the type of loan used and the borrower’s unique situation.

Under the Blue Water Navy Vietnam Veterans Act of 2019, the funding fee rose from 2.15% to 2.30% for first-time borrowers and 2.40% to 3.60% for those who previously used a VA Loan. Those fees stay in effect for two years, followed by a return to the new equalized rates over almost eight years. “After that, the fees are scheduled to decrease to earlier levels of 1.40% for first-time borrowers and 1.25% for previous VA Loan users,” said Hamblin.

Also under the new Act, active-duty Purple Heart recipients and Veterans receiving VA disability benefits are exempt from the funding fee. The Act also equalizes the fee for both first-time and subsequent uses between Active Duty/Veterans and Guard/Reserve borrowers. National Guard or Reserve borrowers had previously paid slightly higher funding fees.

Appraisals

The property being purchased must be appraised as part of the VA Loan approval process. An appraiser completes an appraisal by viewing the property and comparing it to recent sales in the same area. The appraisal confirms for the lender that the property the applicant is purchasing is worth what they’re paying for it.

In the past, only appraisers with certifications from the VA could perform a VA appraisal. The new Act simplifies these requirements for many properties, including those that are “non-complex” per Uniform Standards of Professional Appraisal Practice (USPAP), those under $1 million, and existing homes that are not new construction. Appraisers can now use information about these properties gathered by their apprentices, trainees, or other subordinates to complete an appraisal report.

“VA appraisals used to take ten days on average, but these changes should help speed the appraisal process so loans close faster,” said Hamblin.

We’re Here to Help

There are several types of loans to consider when financing a home. AMS is ready to assist you in obtaining a low-cost and low-rate mortgage to build, buy or refinance your home. Get a free mortgage assessment today or call us at 844-218-6926 to get started.