memorial day

If you or your spouse has served in the military you’ll benefit a lot from this article as we go on to discuss the big changes to VA Loans this 2020.

In a nutshell, we’re looking at higher borrowing power and increased fees for active members of the service and veterans.

The Blue Water Navy Vietnam Veterans Act of 2019 is responsible for delivering the details of the changes which were put into effect as of January 1, 2020.

On top of giving benefits to more disabled veterans from the Vietnam War with exposure to Agent Orange, the law eliminates VA loan limits for borrowers who have full entitlement.

Moreover, VA funding fees are increased for most borrowers with the exception of National Guard and Reserve members.

Lastly, recipients of the Purple Heart are now exempt from the VA loan funding fee obligation as much as those entitled to VA compensation.

 

What Does a VA loan do?

A VA home loan is a no down payment mortgage option issued by private VA lenders that are partially backed, or guaranteed by the Department of Veterans Affairs (VA).

Borrowers who go through a successful loan application for a VA loan program can use it to purchase a property that is their primary residence or refinance an existing mortgage.

 

Who can qualify for VA loans?

VA loan programs are easily among the best ways to finance your home, vacation home or investment property especially with the recent changes offering a rate reduction and increased VA loan funding fee.

See if you or a loved one qualifies as a VA borrower. Here are the criteria:

  • Active service during wartime for at least 90 consecutive days
  • Active service during peacetime for 181 days
  • Being in the National Guard or Reserves for 6 years
  • Being the spouse of a disabled veteran or service member who died in the line of duty due to a service-related disability

One thing making VA loan requirements different from FHA and USDA loans is that it doesn’t look at a VA borrower’s credit score. VA lenders would need to review their loan profiles instead of the credit score.

 

What caused the rule changes in the VA loan?

veteran's house

The Blue Water Navy Vietnam Veterans Act of 2019

This was implemented in 2019 with the goal of further supporting veterans who may have developed medical conditions possibly caused by Agent Orange where they may have had exposure to herbicides during their service in Vietnam.

More specifically, active service members or veterans who have served offshore of the Republic of Vietnam within the period of January 9, 1962 to May 7, 1975 are all considered to have been exposed or whose condition may have been aggravated for such service for as long as there is no record of already having the disease at the time.

The legislation was deemed necessary because of the number of claims tied to Agent Orange and herbicides that were possibly used during the Vietnam War.

Agent Orange was an initiative to destroy any form of cover the opposing troops in North Vietnam may have had – mainly forest cover and crops.

Herbicides used at the time were contained using a chemical – dioxin. Said chemical is known for causing cancer, birth defects, and possibly even psychological problems.

During the war, more than 20 million gallons of Agent Orange were used in Vietnam between 1961 and 1971.

 

Additional Benefits of VA Loan

For quite sometime now, veterans and active service members who want to purchase a home whose worth is above their respective county VA loan limit would need to make a down payment. Not this 2020 though.

Veterans across the country can now enjoy larger mortgagee loans with the removal of loan limits and allow for budgets to be maximized or to be able to live in more expensive housing markets.

Though this should not be taken literally, this will definitely help veterans who are looking to fund their home at a 0% down payment.

VA loan limits will still be present in the year 2020 for those who have defaulted on a loan initiated before January 2020.

Down payment requirements may still apply if the purchase price exceeds the loan limit. However, the formula used for computing will still take entitlement and home price into consideration.

Worth noting in the removal of loan limits is that any lender exercises the right to disapprove transactions where the borrower cannot be expected to afford the VA mortgages upon assessment.

On this note, VA borrowers and lenders still need to properly evaluate transactions and follow the usual process to qualify the home loans or in other words, exercise due diligence.

 

VA Funding Fee Changes

Any previous down payments made will determine the funding fee veterans pay in the year 2020. 

Whatever the case, the loan can either be a ‘first use’ or a ‘subsequent use’ kind where the upfront fees can either be paid upfront or integrated into the monthly payments.

First-use and zero-down loans now have 2.3% funding fees of the loan amount coming from 2.15% in 2019.

Subsequent use loans are now 3.6% coming from 3.3%

Do note that the rate reduction and other new loan benefits will only stay for two years. We can expect this to go back to normal between 2022 to September 30, 2029, 7 years later and proceed to go even lower after that period.

 

VA Home Loan Buying Process

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Here are the following steps you need to take to apply for a VA loan program:

 

  • Apply for a Certificate of Eligibility whenever you transact for a VA-backed home loan

the COE will serve as proof for qualifying the VA loan benefit.

 

  • Assess your current financial situation

Your income, expenses, monthly budget, and credit profiles should all be ready when you are about to buy a home.

Set the amount you’re willing to spend on a VA mortgage and be sure to consider closing costs and all other costs on top of the base price.

 

  • Find a lender

Lenders offer varying rates for fees and interest whether you’re going for a mortgage company, credit union, bank, or other financial institution.

Be sure to shop for the best rates for you. In doing so, you may find the bank does not offer the best interest rates for your VA loan program.

Set aside a budget for lender fees as lenders charge a 1% flat fee or loan origination fee. Always be sure to ask for fee details from your lender and seize every opportunity to negotiate for interest rate reductions.

 

  • Find a real estate agent

Scout for reliable real estate agents who can make the process as fluid as possible for you. You can perhaps start with friends, family, and neighbors who received great service from an agent.

Meet with as many as you need to and ensure you understand the whole process from paper to purchase as well as any fees and rights you have as a buyer in the transaction. 

 

  • Go and find yourself a new home

Once you have the desired budget, find a house that works within it. Always have notes on how to get better appraisals for the one you wish to buy and a good set of comparisons.

Details you need may include but are not limited to location, living conditions, and condition of interior/exterior of the house.

 

VA Streamline Refinance

Also known as an IRRRL or Interest Rate Reduction Refinancing Loan, VA Streamline Refinance offers the following:

  • An opportunity to lower monthly VA mortgage payments through lower interest rates and…
  • A choice to move between variable interest rates to fixed ones so your monthly payments can be more predictable. 

With the recent changes in VA loans for veterans and active service members, you can now take advantage of the recent changes to VA loan arrangements through refinancing.

However, when you choose to apply for refinancing loans, note that closing costs can account for thousands of dollars. So be sure to weigh the move properly so you don’t end up losing money instead.

To compute for this, just spread out the savings across the months your loan is payable and compare from there. Consult a VA lender to find out what costs you incur with each option and what loan benefits there are for pursuing them.

Qualifying for a VA Streamline Refinance first needs a currently VA financed property. This means veterans who go for the IRRRL cannot do so if the loan is a non-VA one.

Some guidelines may vary from one VA lender to another. These include policies on appraisals, loan-to-value ratio, credit scores, how long you’ve had your current mortgage, etc.

Some may also have a ‘no 30-day late payments’ requirement for the past 12 months upon transacting.

Another benefit of the IRRRL is that it doesn’t require the current occupancy of a home. So you can proceed with refinancing even if you do not intend to occupy the property being refinanced.

This means the same VA home loan can be used for a vacation home or investment property.

Lastly, the IRRRL cannot work as a Cash-out refinance loan.

 

Final Thoughts

The Blue Water Navy Vietnam Veterans Act accounts for the effects of Agent Orange to further provide for housing opportunities among veterans and active service members.

With that, VA loans now offer additional benefits in the form of increased funding fees and the removal of loan limits.

When looking for VA lenders and real estate agents, always be on the lookout for good deals.

Not only will they have different interest rates, but they will also have varying guidelines for granting VA loans that look at the loan amount, previous loans, and many others.

Finally, this new wave of changes may be the perfect time to leverage the VA Streamline Refinance option.

If you haven’t already, you can refinance existing loans to make use of the low-interest rates and loan funding fees that stretch out from 2020 until 2022.