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VA Home Loan Rule Changes

When was the last time you explored your VA loan options? If it’s been a while, some aspects of the program may be quite different for you. In 2020, there were alterations made to the VA home loan benefit thanks to legislation known as the Blue Water Navy Vietnam Veterans Act of 2019.

Some of these are major changes, others affect small-but-important groups of veterans. If you haven’t explored your VA home loan benefits in a while the following changes may be new to you.

VA Loan Funding Fee Changes

Some adjustments to the VA Loan Funding Fee were made to create parity between active duty, Guard, and Reserve fees. At one time the VA Loan Funding Fee varied depending on whether you were on active duty or in the Guard/Reserve.

Under the current rules, the VA loan funding fee is charged based on the amount of any downpayment you choose to make and that fee is currently the same for first-time use no matter if you are on active duty or not.

Another change made to the VA Loan Funding Fee rules allows Purple Heart recipients to apply for a waiver of the VA loan funding fee. This must be done while the service member is on active duty.

VA loan funding fees aren’t charged across the board. Any VA borrower who received or is entitled to receive VA compensation for service-connected medical issues can apply to have the fee waived.

However, this waiver is not automatic and if the VA has not made a final determination at the time you apply for the VA loan you may be required to pay the VA loan funding fee and apply for a refund once the VA has updated your files with its disability rating decision. This refund is not automatic and you will be required to submit supporting documentation to be approved.

No VA Loan Limit For Those With 100% VA Loan Entitlement

If you looked at your VA loan options prior to 2020, your loan choices would have been informed by the VA loan limits in your county for that calendar year. If you look at your VA loan options now and have either never used your VA loan benefit or have had your entitlement restored to 100%, you have NO VA LOAN LIMIT.

You will negotiate the loan amount with a participating VA lender. You can get a zero-down VA home loan even in high-cost markets and technically you may qualify for a zero-down VA Jumbo Loan if you meet lender standards for that larger mortgage.

The lack of a VA loan limit does not mean there are no restrictions on the loan. As the Department of Veterans Affairs reminds us, “…borrowers seeking to use their VA home loan guaranty benefit still must qualify for a loan, based on credit and income requirements set forth by VA.”

Your participating VA lender will review your credit scores, repayment history, income, and other criteria to see if you qualify for the loan and use your FICO scores to determine the interest rate.

No Loan Limit on VA Native American Direct Loans

In general, the Department of Veterans Affairs does not lend money directly to VA borrowers. Instead, the VA relies on a network of participating VA lenders who operate with the approval of the VA.

The one exception is the VA Native American Direct Loan program which at one time featured a loan limit of $80 thousand for those who were interested in and entitled to build or buy a home on Federal Trust lands. The Blue Water Navy Vietnam Veterans Act removes this loan limit.

There are approximately 100 tribes that have a memorandum of understanding with the federal government that enables this program; contact the Department of Veterans Affairs directly to learn if you may apply.