VA Home Loan Funding Fees Rise, Limits Disappeared in 2020
Key Takeaways
- Borrowing power in an expensive market changed in 2020 rather than recently, because the Blue Water Navy Vietnam Veterans Act of 2019 let the Department of Veterans Affairs begin backing loans that exceed the conforming loan limit, which is why a homebuyer eligible for VA financing can borrow above county loan limits without making a down payment, where previously veterans were limited to spending $484,350 in most places and up to $726,525 in cities with above-average home prices.
- Plan for one real cost even though there is no down payment and no mortgage insurance: a one-time funding fee typically paid at closing, a percentage of the loan that varies based on loan amount, service history and other factors, given at the time of writing as 2.3% for first use and as increasing from 3.3% to 3.6% for subsequent use, an increase intended to help finance health care costs for veterans who are suffering the effects of Agent Orange exposure.
- Service time is one route among others rather than the whole test, so what matters is which door you come in by, whether that is 90 consecutive days during wartime (unless discharged or separated from a previous qualifying period of active duty service), or 6 years in the National Guard or Reserves, or 181 days of service during peacetime, with separate routes set out for surviving spouses.
- Where a service-connected disability is in play, a rating can change what you owe and what is asked of you, since vets who are rated at least 10% disabled can be exempt from the VA funding fee, may not need to meet a minimum service requirement, and may be eligible to receive Specially Adaptive Housing (SAH) grants for home modifications.
The VA home loan is one of the most attractive mortgage programs available. There is no down payment, no mortgage insurance, and they’re often easy to obtain.
Here’s what you need to know about the VA loan program increases coming next year.
VA loan limits eliminated in 2020
First and foremost — the exciting news — you can borrow more money. That’s right. under the Blue Water Navy Vietnam Veterans Act of 2019, the Department of Veterans Affairs can now back loans that exceed the conforming loan limit. This means homebuyers who are eligible to receive VA loan financing can borrow above county loan limits without making a down payment. Previously, veterans were limited to spending $484,350 in most places and up to $726,525 in cities with above-average home prices. This is a big win for military borrowers who are looking to purchase a home in higher-priced markets like Denver, Seattle, San Diego, New York City, and many more.
VA funding fee to increase
Next comes the less popular change: an increase in the funding fee. The VA funding fee is a one-time expense that is typically paid at closing. It’s a percentage of your loan, and it varies based on your loan amount, service history, and other factors. It’s a necessary cost because it sustains the VA home lending program and ensures future veterans can receive the same benefit.
The current VA funding fee for first-use borrowers is 2.3% of the loan amount. Subsequent use funding fees will increase from 3.3% to 3.6%.
You may be wondering, “why is this change necessary?” Great question. The increase is intended to help finance health care costs for veterans who are suffering the effects of Agent Orange exposure as a result of their service. Agent Orange was used to clear plants and trees during the Vietnam War. If you served in Vietnam or in or near the Korean Demilitarized Zone (DMZ) during the Vietnam Era—or in certain related jobs—you may have had contact with this herbicide.
VA mortgage requirements
To qualify for a VA home loan, certain service requirements must be met, such as:
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90 consecutive days during wartime (unless discharged or separated from a previous qualifying period of active duty service
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6 years in the National Guard or Reserves
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181 days of service during peacetime
You may also be considered eligible if:
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You are an un-remarried spouse of a Veteran who died while in service or from a service-connected disability
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You are a spouse of a servicemember missing in action or a prisoner of war
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You are a surviving spouse in receipt of Dependency and Indemnity Compensation (DIC) benefits in cases where the Veteran's death was not service-connected
For a full list of VA home loan requirements, visit the Department of Veteran Affairs website.
Why choose a VA home loan?
There aren’t many mortgage options that allow you to buy a home with no money down and no mortgage insurance. Plus, you have access to rates that are lower than FHA and conventional loans.
But that’s not all. There are additional benefits available to you if you experienced a service-connected disability. Vets who are rated at least 10% disabled:
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Can be exempt from the VA funding fee
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May not need to meet a minimum service requirement
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May be eligible to receive Specially Adaptive Housing (SAH) grants for home modifications
To learn more about the VA home loan program and its upcoming changes in 2022, call one of our mortgage consultants at (800) 910-4055. You can also schedule an appointment online.
