Veterans and military service members will have more borrowing power but will pay slightly higher fees when they use VA home loans in 2020.
The changes are part of the Blue Water Navy Vietnam Veterans Act of 2019, signed into law in June and effective Jan. 1, 2020. The new law eliminates VA loan limits and increases the VA funding fee. It also provides disability benefits to certain Vietnam War veterans and their children.
VA loan limits are the maximum loan amount the Department of Veterans Affairs can guarantee without borrowers making a down payment. VA funding fees are one-time fees borrowers pay in lieu of mortgage insurance to help cover the government’s costs for backing the loans. If a borrower defaults, the VA repays the lender a portion of the loan.
» MORE: VA loans: What to know
No VA home loan limits in 2020
“The loan limit change is a big win for veterans nationwide, especially for those buying in more expensive housing markets,” says Chris Birk, director of education at Veterans United Home Loans. “Extending their zero-down buying power will save some veterans a lot of money and help them stay competitive with conventional buyers.”
The removal of loan limits doesn’t mean unlimited borrowing power without a down payment. You’ll still need to have sufficient income and meet a lender’s credit requirements to qualify for the loan amount.
The loan limit change is a big win for veterans nationwide, especially for those buying in more expensive housing markets.
Lenders can continue to impose their own in-house maximum loan amounts, Birk says. And loan limits will still apply in 2020 to veterans who have more than one active VA loan or have defaulted on a previous loan, Birk says.
Currently, VA loan limits are the same as those set by the Federal Housing Finance Agency on conforming loans. The limit in 2019 is $484,350 in a typical U.S. county and higher in high-cost counties, such as San Francisco County.
You can borrow more this year if you qualify for a VA loan, but the lender will require a down payment if the purchase price is above the loan limit. The exact down payment you will pay is subject to a formula based on your entitlement and home price.
VA funding fee to increase
The VA funding fee you pay in 2020 will depend on your down payment amount and whether you’ve ever had a VA-backed loan before. If you haven’t, it’s a “first use” loan, and if you have, it’s a “subsequent use” loan. You can pay the fee upfront or roll the cost into the loan.
The fee for first-use, zero-down loans will be 2.3% of the loan amount in 2020, up from 2.15% for regular military in 2019. The fee for subsequent use loans will be 3.6% of the loan amount, up from the current 3.3%. These fees will stay in place for two years, return to current levels from 2022 to October 2029 and drop further after that.
“The funding fee increase that passed is significantly lower and for a shorter duration than previous versions of the bill,” Birk says. “We’re concerned anytime it could become harder or more expensive for veterans to utilize their hard-earned benefits.”
Other VA funding fee changes
The Blue Water Navy Vietnam Veterans Act of 2019 made a couple of other funding fee changes. Starting in 2020, the fees will be the same for regular military, National Guard and reservists. Currently, National Guard and Reserve members pay slightly higher fees.
In addition, active-duty service members who have received a Purple Heart will be exempt from the funding fee starting next year.
This article was updated to clarify information about the down payment requirement if the loan amount exceeds 2019 VA loan limits.