Are you a military service member or a veteran looking to buy a home? If so, you might consider using a VA loan since VA loans offer a number of unique benefits that are only available to those who have served in the military.
A VA loan is a mortgage that is guaranteed by the Department of Veteran Affairs. VA loans are designed to help active-duty military and veterans qualify for a home loan. VA loans often offer lower interest rates and better terms than conventional mortgages and are offered exclusively to service members and certain military spouses.
VA loans aren’t offered directly by the government. Rather, VA mortgage loans are offered by private lenders like banks or mortgage companies and are guaranteed against default by a government agency.
Let’s start by looking at the benefits of VA loans.
VA Home Loan Benefits
VA mortgage loans in 2021 provide borrowers with a number of advantages, including zero down payment, no monthly mortgage insurance premiums, potentially lower interest rates than conventional loans, and more.
Beyond those features, there is another major advantage for VA loans that was put in place by a bill passed in Congress last year. This important piece of legislation, also known as the Blue Water Navy Veterans Act, brought exciting changes for VA mortgage loans that are still in place in 2021.
Recent Changes to VA Loans
The biggest change to VA loans brought about by the Blue Water Navy Veterans Act is the removal of loan limits. Prior to the change, some veterans, especially those who were seeking to buy a house in a higher-cost area, were subject to federal loan limits. These limits establish the maximum amount someone can borrow for their loan.
But the Blue Water Navy Veterans Act removed these limits, as long as you have full entitlement.
This is how the VA describes the change:
Veterans will have greater access when using their no-down payment home loan benefit. Veterans seeking to obtain what are commonly referred to as "jumbo" loans, or Veterans living in higher-cost markets, will no longer be subject to the Federally-established conforming loan limit maximums.
According to the VA, with this change, VA borrowers may now take out “no-down payment VA-guaranteed home loans in all areas of the country, regardless of housing prices.” However, it’s important to note that this change does not mean that borrowers can use a VA loan to take out an unlimited amount of money without any stipulations at all.
Veteran borrowers must still qualify for a loan, based on their credit history, income, etc. A lender will review your credit, income, and other factors when determining whether to extend credit to you and how much to extend if you qualify.
While the loan limits have been removed, the fee that VA borrowers in exchange for their loan may have also changed.
VA Funding Fee Changes
VA loans require a funding fee, which is a one-time payment that the borrower pays for a VA loan. According to the VA, this fee “helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.”
When the Blue Water Navy Veterans Act went into effect, it brought some changes to these fees.
Veterans and servicemembers saw their funding fees slightly increase, while National Guard members and Reservists saw their fees decline slightly.
For example, a veteran or servicemember trying to obtain a VA loan for the first time who puts no money down was formerly assessed a 2.15% funding fee. With the changes, a first-time VA loan borrower not using a down payment will pay a 2.3% funding fee instead, based on the loan amount.
For someone putting down 10% or more, the funding fee increased from 1.25% to 1.4%. Anyone using a second VA loan with no down payment would be charged a 3.6% fee, up from 3.3%.
Previously, National Guard members and Reservists paid slightly higher fees than veterans and servicemembers, but now members of the military, National Guard and the Reserves will be charged the same funding fees.
In addition, service members who were awarded a Purple Heart will be exempt from the funding fee. Veterans receiving any disability benefits will continue to be exempt as well.
While the funding fees went up slightly, it’s important to note that the funding fee can be rolled into the loan amount, spreading the fee out over the life of the loan.
Now, let’s look at how these changes affect those using a VA loan.
Impact on VA borrowers
Overall, the changes to the loan limit rules give veterans across the country more buying power because they may be able to take out a larger loan, depending on their financial situation. These new loan limit rules give veterans the ability to choose from a wider selection of homes to purchase — that includes homes in costlier housing markets. These policies allow veterans to stay competitive with conventional buyers.
Are you eligible for the exceptional advantages that a VA Home Loan has to offer? A New American Funding loan officer knows the ins and outs of a 2021 VA loan and is ready to help you realize your dreams of homeownership. For more information, contact us today!