Big Changes for VA Loans
There are some big changes coming soon for VA loans. One of the changes is very good, and the other change is either good or bad, depending on whether you served in the active military, or the Reserves or National Guard.
Here’s what you need to know about the VA loan changes.
Veteran or Active Military
At the moment, if you are a veteran or active military, you can get a zero down payment VA loan for an amount up to the conforming loan limit, which is $561,200 in the Denver Metro area. In Boulder County, the loan limit for a VA loan with no down payment is $626,750.
If a VA borrower is buying a house for more than those limits, they are required to make a down payment of 25% of the amount that exceeds the limits. As an example, if you are getting a VA loan in Denver County, where the limit is $561,200, and the price of the house is $600,000, you would need to make a down payment of 25% of the difference between 600,000 and 561,200. 600,000 – 561,200 = 38,800. That means your down payment would be 25% of $38,800, or $9,700.
Now for the good news.
This down payment requirement is changing for all VA loans that close on or after January 1, 2020. If your loan closes on or after that date, there is no longer a requirement to make any down payment. It doesn’t matter how expensive the house is, you do not have to make a down payment.
The second change that goes into effect for VA loans that close on or after January 1, 2020 is an adjustment to the VA funding fee. If you are not receiving VA disability, you have to pay a VA funding fee when you get a VA loan. The amount of the funding fee is based on the size of your down payment, whether you have used your VA loan entitlement before, and whether you served in the active military, the Reserves, or the National Guard.
Beginning is January, there will no longer be different funding fees for active military, Reserves, or the National Guard. The funding fee will be going up slightly for active duty military, and down slightly for the Reserves and National Guard. As an example, the current rules require active duty veterans to pay 2.15% of the loan amount for the funding fee, and Reserves and National Guard veterans to pay 2.4% of the loan amount for the funding fee. Effective January 1, everyone will have to pay 2.3% of the loan amount for the funding fee if they don’t make a down payment.
You are allowed to include the VA funding fee in the loan amount, so no money is due at the closing. This is the current rule, and it will also be the rule after January 1, 2020.
There is a funding fee waiver available for veterans who are receiving VA disability. Depending on the percentage of disability, you may be exempt from the funding fee. Under the new rule, Purple Heart recipients are also exempt from the funding fee, regardless of whether they are receiving VA disability or not.