For a long time, VA loans have probably been the best tool for buying, building, or refinancing a home. Fortunately, current military, Veterans, and qualifying surviving spouses have this benefit. But, there is a major change beginning January 1, 2020! VA eligible borrowers may now finance a no money down purchase with no loan limit! $1,000,000 purchase? 100% financing! $1,500,000 purchase? No money down. Do I have your attention? If you are VA eligible, sell to military buyers, or build for military buyers, you need to read this and spread the word! So, let’s dig into the details of this massive update to the VA loan limits.
Blue Water Navy Vietnam Act of 2019 Affects VA Loan Limits
So, what in the world happened? Well, a recent act was created which provides VA benefits to those offshore during the Vietnam war that are affected with Vietnam related diseases. Prior to this, only those fighting the war on the ground received VA assistance. Therefore, many well deserving military Veterans are getting the help they need. Also, included in the bill are some key changes to VA loans and here they are…
- No VA loan limits when full VA entitlement is available
- Increase in VA funding fees
- Equal VA funding fee for all military types
- Waiver of VA funding fee for qualified Purple Heart recipients
No VA Loan Limits for VA Eligible Borrowers!!
Of course, for every guideline change there are requirements and scenarios that are excluded. This new announcement is no different. Foremost, this VA rule enhancement only applies to current service members, Veterans, and surviving spouses who have full entitlement. For those which are using bonus entitlement, it is time to get out the old VA loan calculators and figure the possible down payment. Learn how bonus entitlement works for having 2 VA loans at once or buying after a VA short sale or foreclosure in our other informative articles.
Before this rule change, exceeding the county VA loan limit meant using a VA jumbo loan. By the way, this is a great product! But, for full entitlement borrowers, it isn’t needed because no down payment is required. This is especially helpful for buyers in higher priced markets such as larger cities, beaches, or high cost counties.
VA Funding Fee Change
The VA loan program is paid by the funding fees charged on all non-exempt VA loans. Every time there is a VA closing, the lender collects the required fee at closing and sends it to VA. Therefore, the program and all its benefits exist. So to help pay for the Blue Water Navy Vietnam Act of 2019, it was decided to increase VA funding fees across the board. Most of the fees increased. The ones that did, increased between .15 – .30% of the loan amount. Although, VA IRRRL streamline refinance and VA assumptions stayed at .50% of the loan amount.
New VA Funding Fee Chart 1/1/2020
|Type of Loan||Down Payment||First Time Use %||Subsequent Use %|
|Purchase & Construction Loan||None||2.3%||3.6%|
|5% or More||1.65%||1.65%|
|10% or More||1.40%||1.40%|
|Cash Out Refinance||N/A||2.3%||3.6%|
|IRRRL Streamline Refi||N/A||.50%||.50%|
|VA Loan Assumption||N/A||.50%||.50%|
Purple Heart Recipients VA Funding Fee Exemption
Full details of this funding fee waiver are not released at this time. Yet currently, the following is known. Members of the Armed Forces who are “serving on active duty and provide, on or before the date of loan closing, certificate or military orders of having been awarded the Purple Heart”, will be exempt from funding fees. VA will release further details for this process and additional evidence to establish eligibility later in 2019.
Historically, Veterans who are disabled 10% or more by the VA are exempt from VA funding fees and this will continue. Basically, qualifying Purple Heart recipients will get the same benefit.
Regular Military vs National Guard / Reservist Funding Fee
From 2019 and before, members of the National Guard and the Reserves have paid higher VA funding fees in certain cases. For instance, first time use for them are 2.4% in 2019. Conversely, regular military pay 2.15%. Yet, for subsequent use, they are equal at 3.3% unless the down payment is 5% or more. But, that changes for closings on or after January 1, 2020. Everyone will be charged the same VA funding fee levels based on their transaction type. Disabled Veterans of any type are still exempt.
2019 VA Limits Compared to 2020 VA Loan Limits
Instead of the 2019 VA loan limit of $484,350, a $1,000,000 purchase would be no money down. $1.5 million purchase equals no money down. Obviously, more often this will affect the $500,000, $600,000, and $700,000 type price levels. Either way, it allows our military heroes to keep their money in their pocket and buy the home of their dreams.
Should I Close Before or After January 1, 2020?
These new VA loan changes start with closings on or after January 1, 2020. For certain buyers or homeowners, it would be better to close before the change. Where others should wait if possible. Of course when you find the right home or have the need now, then you gotta do what you gotta do. But when you have a choice of when to close, there are advantages to consider.
Reasons to Close VA Loans Before January 1, 2020
So, if you are buying or refinancing a home where a down payment is not required before or after the change date, it may be better to close now. Why? Because you would pay .15 – .30% less in VA funding fees. Unless you are a disabled Veteran and you are exempt from the VA funding fee. Every little bit counts, so take advantage if this applies to you.
What if you are in the National Guard or Reserves? Same thing. Although Reservists and National Guard pay a higher fee in some circumstances, it is going up. When it comes to this fee, it is better to close now.
Reasons to Close VA Loans After January 1, 2020
Conversely, there are reasons to buy, build, or refinance after January 1, 2020. First of all, Purple Heart recipients who are not receiving VA disability would save 2.3% – 3.6% of the loan amount by waiting. Thus after January 1, Purple Heart recipients will receive the same VA benefit as disabled Veterans. Which means VA funding fee exemption.
Another big reason to wait for your VA loan would be those buying above the VA loan limit in your county. Currently, VA lenders must calculate a down payment for your VA jumbo loan. This required down payment starts off very low and graduates as the price or value increases. Now that there is no VA loan limit, it could be huge to your savings account to wait for Jan 1. Although, buying within the 2019 limit is already good for 100% so go ahead. As mentioned before, this only applies when there is full VA entitlement!