Veterans Benefits Bill Brings Big Changes to VA Loan Program
President Obama will sign a wide-ranging veterans benefits bill today that provides greater access to the VA home loan program for disabled veterans, single-parent soldiers and surviving spouses.
The “Honoring America’s Veterans and Caring for Camp Lejeune Families Act” contains provisions affecting everything from health care and homelessness to education and even service animals. Most of the headlines will focus on health care benefits now available to people who were exposed to contaminated drinking water at Camp Lejeune, a Marine Corps base in North Carolina.
But some key updates and changes to the VA’s longstanding loan guaranty program will be good news for thousands of military members and their families. Here’s a rundown of some of the most important changes:
VA Funding Fee
Seller-financing options generally mean VA borrowers pay little to nothing in closing costs. But one expense they’re usually on the hook for is the VA Funding Fee, a mandatory charge the Department of Veterans Affairs applies to every loan. This fee, a percentage of the loan amount, helps pay for the loan program and keeps it self-funding. The VA waives the fee for borrowers with service-connected disabilities.
But congestion and long waits within the VA medical system have clouded the benefit. Military members preparing to leave the service may undergo a pre-discharge disability exam but wait months before receiving an official diagnosis and disability rating. In the mean time, those who use their VA loan entitlement to purchase a home are assessed the VA Funding Fee, which is usually financed into the loan.
This new law will exempt from the funding fee any service member who is found eligible to receive compensation during a pre-discharge exam.
Single Parents and Married Couples in the Military
VA loans have occupancy requirements meant to ensure these no-down payment, government-backed loans are used only for primary residences. Spouses are allowed to fulfill this requirement for a service member who is deployed or who can’t otherwise reside in the home soon after closing. But that clearly isn’t an option for single people and married military couples serving elsewhere.
Under this veterans omnibus bill, single parents and married military couples can have a dependent child fulfill the occupancy requirement.
The VA provides access to the loan guaranty program for spouses of veterans who died in the line of duty or of a service-connected disability. Military groups and recently some elected officials have lobbied to extend the opportunity to more military widows and widowers. Moving forward, VA loan eligibility will now extend to spouses of veterans who lived at least the last decade of their lives with a permanent service-connected disability, regardless of whether it led to their death.
VA Loan Limits
After three years at higher-than-normal levels, the VA’s loan limit in high-cost counties fell back to $625,500. That made purchasing a home in expensive parts of the country more difficult for some veterans, who either had to scale back or come up with cash. Veterans who buy above the county loan limit have to pay 25 percent of the difference in a down payment.
This bill will bring those new, higher loan limits (up to $729,750 in most high-cost counties) back into play through Dec. 31, 2014.
Adjustable Rate Mortgages
Adjustable-rate mortgages (ARMs) and hybrid ARMs have been an off-and-on part of the VA loan guaranty program for more than two decades. Part of the Bush Administration’s veterans bill of 2008, these loans were slated to disappear from the VA’s lending options at the close of this year.
This new act will install ARMs and hybrid ARMs as permanent parts of this nearly 70-year-old loan program.
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Chris Birk is a former journalist and author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.” He is also content development director for Veterans United Home Loans. Follow him on Google+.