6/28/2019 | Casey Fleming | Are you a veteran? Have you ever asked what is the maximum loan amount for a VA loan? Well, now there is no limit. This is HUGE news! Congress passed a bill that eliminates the ceiling on the amount of a VA loan. Before this bill the biggest loan you could get using a VA loan was constrained by the conforming loan limit – $484,350 in most areas, up to $726,525 in high-cost areas.
As of today, there is NO cap on the loan amount for this very valuable benefit for veterans.
Why Are They Changing VA Loan Rules?
This change came about in an odd way. Congress has known for some time that they need to find funds to support Vietnam veterans with disabilities, particularly those related to Agent Orange exposure. They’ve struggle for a long time, however, to find the funds. One proposal was to increase the fee that the VA charges to the lender for each loan from 0.35% of the loan amount to 0.5%. However, lenders of course would pass this cost on to the consumers – to veterans specifically. That was a hard sell.
The National Association of Realtors (NAR) lobbied Congress hard and argued – successfully – that allowing veterans to purchase higher-priced homes would raise the money through funding fees on loans that would otherwise not be made. In other words, by eliminating the cap on the loan amount more (and larger) loans would be made. Even at the lower fee amount, more money would be collected because more loans were being made.
Raising funds this was therefore became a benefit to veterans, rather than a burden to them.
How Does a VA Loan Work?
The VA does not actually make loans. If you are a veteran, you apply for your loan with any lender who is approved by the VA. The VA does create the guidelines for qualifying you, but the lender processes, underwrites and funds the loan.
The Veterans Administration then guarantees the lender that they will be repaid on the loan if anything goes wrong.
What Are the Benefits of a VA Loan?
VA loans are available to veterans and active duty military members, including reservists, and spouses of deceased veterans who have not remarried.
VA loans do not require a down payment. Veterans can purchase a home with nothing down.
Unlike most other zero-down or low-down payment loans, VA loans require no ongoing mortgage insurance.
Because VA loans are guaranteed by the government, they tend to carry very low interest rates – typically 0.5% lower than a conventional loan, more or less.
Unlike some programs, you do NOT have to be a first-time home buyer!
What This Means for Veterans
This announcement changes very little if you are a typical first-time home buyer, as most first-time home buyers are not purchasing homes that require large loans. However, many veterans are unaware that they can use their VA benefit again and again. If you are a veteran and are “moving up” to a bigger home you can re-use your VA benefit. You could be out of the service for 20 years, well into your career, and moving up into your third or fourth home. Now, no matter what the price range of your new home is, you can use a VA loan to finance as much of it as you want.
In Silicon Valley, where I am based, this could be huge, since a typical first “move-up” home could easily cost $1.5 million.
Other Things to Know About VA Loans
While there is no mortgage insurance, there is an up-front funding fee of 1.25% to 3.3%, depending on your circumstances. This funding fee funds the operations of the VA loan program and gives the VA an insurance pool to take care of the few loans that fail.
The funding fee can be financed into the VA loan if you want (and almost always is), and is waived if you have a service-related disability.
Thank You for Your Service
The VA loan program has always been a great way to show our gratitude to our veterans by providing them with a substantial, tangible benefit and helping them realize the American Dream. This new change simply extends this terrific benefit to more veterans.
So, to all veterans, thank you for your service!
This article represents the opinions of Casey Fleming, and not necessarily those of C2 Financial Corp. This analysis was prepared with the best information available at the time it was written. Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source. No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.
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