2020 brings big changes to anyone looking to utilize a VA loan. A law passed by president Trump last year increased the amount in a home loan that Veteran’s may borrow before they require a down payment, even in areas with high housing costs where veterans have historically been required to make a 25% down payment. However, the higher limits come with more fees for borrowers.
Loan Amount Increases
The VA’s maximum loan guarantee amount is calculated as a percentage of the Federal Home Loan Mortgage Corporation Act, or Freddie Mac, limit, which is $484,350 for most counties. Since the VA’s guaranty of a loan is 25%, the maximum allowable amount for a loan was capped at the Freddie Mac limit. If a veteran wanted to buy a more expensive home, they were required to pay 25% of the difference or not use the VA program. The new law eliminates the Freddie Mac link to VA loans and instead will make the maximum guaranty 25% of the loan amount.
The removal of loan limits doesn’t mean unlimited borrowing power without a down payment. The borrower will still need to have sufficient income and meet a lender’s credit requirements to qualify for the loan amount.
Increase in Funding Fees
The VA funding fee the borrower pays will depend on the down payment amount and whether it’s a “first use” loan or a “subsequent loan.” If the borrower has never had a VA loan, it’s a first use and if they have, it’s a subsequent use loan. The borrower can pay the fee upfront or roll the cost into the loan.
The fee for first-use, zero-down loans is 2.3% of the loan amount in 2020, which was 2.15% in 2019. The fee for subsequent use loans will be 3.6% of the loan amount in 2020, which was 3.3% […]