It didn’t get the publicity it deserved last week, but there was a major change for VA home loans. Over the years, the loan limit for VA loans has changed, and the changes have always been favorable to the veteran. The most recent adjustment eliminates the loan cap completely.
The Blue Water Navy Veterans Act of 2019 allows buyers to purchase and finance a home utilizing the VA loan with no down payment. The “Jumbo VA Loan” has always been available, but not without the requirement of a down payment from the veteran. Eliminating the cap will open up new housing opportunities for veterans across the country, and goes into effect on January 1st, 2020.
Originally, the maximum VA loan accompanied with no down payment, was directly tied to the VA home loan guarantee. The VA guarantee applies to all VA loans and should a VA loan ever go into default, the lender is compensated at 25 percent of the loss. This calculation is directly tied to the Entitlement amount awarded to the veteran. This amount has also adjusted over time and affected the maximum VA limit. Today, the entitlement is $36,000.
The Department of Veteran Affairs will guarantee a loan at four times the entitlement amount, or $144,000. However, for loan amounts greater than $144,000, the guarantee applied to those loans as well, up to an amount matching the current conforming loan limit. The conforming loan limit today for most parts of the country is $484,350. In areas where real estate values are much higher compared to other parts of the country, the zero down conforming loan limit could be as high as $726,525. This guarantee is financed by the Funding Fee. The new bill signed into law last week by the President essentially eliminates this process.
Lenders will issue approval for the loan following the guidance of current underwriting guidelines based upon credit, income, employment and other factors. Employment and other guidelines remain unchanged as well. Lenders want to see a minimum of two years of employment and if self-employed, two years of self-employment verified by personal and business tax returns.
Eliminating these loan limits for a zero down loan will open up housing opportunities for thousands of veterans, active duty personnel with at least 181 days of service, National Guard and Armed Forces Reserve members with six or more years of service and un-remarried surviving spouses who have died while serving or as a result of a service-related injury.
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