New Rules for VA Loan Limits

The VA home loan benefit is one that most consumers would be thrilled to have; a mortgage loan with no down payment, no VA-required mortgage insurance, and the lower interest rates commonly associated with government-backed home loan programs.

The VA loan program has weathered many difficult times including the housing crisis of 2008, for much of the agency’s existence, the fundamentals of the VA mortgage program have not seen dramatic changes.

VA loan program rules are often adjusted or modified by legislation, changes to the program itself, and to accommodate changes in the industry.

Of the most significant changes to the program, some of the biggest come not as a result of legislation directly aimed at helping veteran mortgage loan applicants, but as a consequence of legislation addressing a need among Vietnam-era service members. One of those was the Blue Water Navy Vietnam Veterans Act of 2019.

VA Loan Program Changes: A Summary

The “Blue Water Act” makes some important changes to the VA home loan program. Some of them are alterations to help pay for some of the measures required by the act, others are procedural changes, while still others are fundamental alterations to the basic structure of VA loans. The changes include:

    • Purple Heart recipients are now exempt from paying the VA loan funding fee the same as those who receive or are entitled to receive VA compensation.
    • No upper loan limit on VA mortgages as of 1 January 2020.
    • An increase in the VA Loan Funding Fee for all non-exempt borrowers.

Agent Orange And “Herbicide Exposure”

The need for the legislation arises from large numbers of claims associated with Agent Orange or other herbicides that may have been used during the Vietnam War.

Agent Orange was used during the conflict as a means to destroy crops, forest cover, and expose North Vietnamese troops (also known as the NVA or North Vietnamese Army) to American forces and those of the Army of the Republic of Vietnam (ARVN).

Agent Orange, and likely other herbicides in use at the time in-theatre, contained a chemical known as dioxin which is known for causing birth defects, cancer, neurological, and even psychological problems.

To give you an idea of how wide-ranging the use of Agent Orange and dioxin was at this time, reports more than 20 million gallons of Agent Orange were sprayed on portions of Vietnam, Cambodia and Laos for a full decade between 1961 and 1971.

The use of Agent Orange created medical and psychological issues for a high volume of cases on both sides of the Vietnam conflict.

What Is The Blue Water Navy Vietnam Veterans Act of 2019?

This legislation, signed into law in 2019 and effective starting in January of 2020, created relief for veterans with medical conditions presumed to have been caused by Agent Orange or “herbicide exposure” during service in Vietnam.

Specifically, “…a veteran who, during active military, naval, or air service, served offshore of the Republic of Vietnam during the period beginning on January 9, 1962, and ending on May 7, 1975, shall be considered to have been incurred in or aggravated by such service, notwithstanding that there is no record of evidence of such disease during the period of such service.”

This means that a veteran who files a VA medical claim “on or after” September 25, 1985, and before January 1, 2020, for a disease (covered by the legislation) and the claim “was denied by reason of the claim not establishing that the disease was incurred or aggravated by the service of the veteran” may be entitled to VA compensation for that claim.

This is true unless “there is affirmative evidence to establish that the veteran was not exposed to any such agent during that service.”

In short, those who served in Vietnam filing certain types of VA medical claims are presumed to have had exposure to Agent Orange or other herbicides and would have those claims approved for financial compensation from the VA.

How The Blue Water Navy Vietnam Veterans Act of 2019 Affects Your VA Home Loan Benefit

The Blue Water Navy Vietnam Veterans Act is also known as House Resolution 299 and addresses a variety of Vietnam-era, Korean War-era, and Gulf War-era issues associated with VA medical claims. But the law also includes other items in the bill including a removal of VA loan limits for approved transactions, and an increase in the VA Loan Funding Fee.

Removal Of The VA Loan Guaranty Limit – No VA Loan Limits!

The Blue Water Navy Vietnam Veterans Act Act amends existing VA program guidelines with changes designed to “expand maximum guaranty amounts for purchase, construction, and cash-out refinance loans greater than the Freddie Mac conforming loan limit”.

That means that if you apply for a home loan using your VA loan benefits, you can apply for a loan for the most expensive home you can find (assuming you have full VA home loan entitlement) and the VA guaranty of the loan is 25% of the loan amount with no down payment.

Essentially, there is no upper limit on the price of the home you wish to purchase using a VA loan as of the law’s implementation date of 1 January 2020. However, if the asking price and the appraised value of the home do not agree, the VA loan amount will be based on the lower of the two amounts.

The borrower cannot be required to proceed with the loan in such cases because when the VA loan amount is lower than the asking price, the borrower must pay the difference in cash and cannot finance that amount. That’s something a borrower may choose to do, but VA loan rules prohibit forcing the borrower to buy the home and pay that difference out of pocket.

VA borrowers who wish to use their entitlement to apply for home loans “equal to or less than $144,000 regardless of Freddie Mac” are not affected by the rule changes and should expect their transaction to be handled in the traditional way.

Loan limits still apply for those who have more than one active VA loan, only partial entitlement available or those who have defaulted on a previous loan.

The Purple Heart Exemption For The VA Loan Funding Fee

The VA Loan Funding Fee is an expense associated with VA mortgages which most veterans must pay unless they receive or are eligible to receive VA compensation for service-connected medical issues.

Thanks to House Resolution 299, those who still serve on active duty and were awarded the Purple Heart are now also exempt from paying the funding fee (as of 1 January 2020) the same as those who receive or are entitled to receive VA compensation for their service-related conditions.

The Resolution also provides for the first increase in the VA loan funding fee program in some time.

A Higher VA Loan Funding Fee Starting In 2020

The VA loan funding fee is on a sliding scale with the lowest fees reserved for first-time VA borrowers, and higher fees for those who have used VA loans before. Prior to the new law, VA loan funding fees for active duty military members buying for the first time were set at 2.15%, with a higher fee for subsequent use set for the same active duty buyer set at 3.3%.

Under the new law, the VA loan funding fee for an active duty first-time borrower is increased to 2.30% and the subsequent use fee set at 3.60%. Other VA loan funding fees are increased too; higher fees may apply for VA refinance loans and other transactions.

What You Need To Know About The VA Loan Limit Rules

VA loan rules under the “Blue Water Act” do remove the loan limits and permit a borrower to potentially buy a house with any price. But VA loan rules cannot compel the lender to approve the transaction in cases where the loan officer feels the borrower cannot realistically afford the mortgage. It will still be required of the borrower and lender alike to prove the loan is affordable and sustainable.

Borrowers will still need to financially qualify for the VA home loan, and lenders must still prove on paper that the loan is affordable. Just because some of the VA loan program requirements have changed does not remove the lender’s need for due diligence.

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