The Blue Water Bill: What It Means for VA Loan Limits in 2020
The Blue Water Navy Vietnam Veterans Act of 2019 is a key piece of legislation that will have a sweeping effect on the VA home loan program for years to come. This act extends benefits to certain Vietnam War Sailors who served between 1962 and 1975 and uses changes in the VA loan program to pay for some of the required measures. The most significant of these changes is the elimination of VA loan guaranty limits.
What are VA Loan Guaranty Limits?
Prior to the Blue Water Bill going into effect on January 1st, 2020, the amount that a qualified Veteran with full entitlement could borrow without making a down payment was limited based on the location of the home. The 2019 county loan limits had a baseline level of $484,350 and went up as high as $726,525 in high cost-of-living areas.
Under these rules, the VA provided a 25% home loan guaranty for loan amounts that fell within the limits. Veterans who wanted to borrow more than these limits would need to come up with a down payment, based on a formula that is being retired!.
This new law enables Veteran borrowers with full entitlement to get a 25% VA home loan guaranty, regardless of the loan amount. If you satisfy the VA and the lender’s requirements, you won’t need a down payment, no matter what the purchase price of your new home is. This is a game-changer for Veterans living in high cost-of-living areas.
VA Loan Entitlement in 2020
Veterans who do not have full VA loan entitlement will still see limits to their guaranty amounts. Having an existing VA home loan typically means your remaining entitlement is subject to the conforming loan limit, minus the amount of entitlement previously used. In this case, restoring full entitlement is possible, usually by refinancing an existing VA home loan into a conventional loan.
Figuring out your available entitlement is a task best left to your lender. Your Certificate of Eligibility is used to determine your entitlement status, and lenders can request this document from the VA in seconds. See an Entitlement Code of 05 at the top of your CoE? That means you’ve used your VA home loan in the past but have since had your entitlement restored.
If your entitlement has been restored back to full, the new Blue Water Bill rules will apply to your next VA home loan.
Beyond Loan Limits
In addition to the lifting of loan limits, the new legislation affects how much borrowers will pay for the VA loan funding fee. Purple Heart recipients are now exempt from paying the funding fee, while non-exempt borrowers will see a temporary fee increase.
Funding fees on zero-down loans are jumping from 2.15% to 2.3% for first-time use and from 3.3% to 3.6% for subsequent uses. Reservists making first-time loans with no down payment will see slightly less in funding fees as their rates drop to equal that of active duty Veterans. These planned changes are set to last for only two years, after which the VA funding fee for all Veterans is set to decrease gradually until 2028.
Finally, the way that appraisers carry out VA appraisals is changing. Now, appraisers can use third-party information rather than personal inspections to determine property values, making it faster and easier to complete the VA home loan process.
Evolving VA Loan Rules
Since its creation in 1944, the VA home loan program has been continuously evolving. As with the introduction of VA loan refinancing options in the 1970s, the Blue Water Bill of today will go down as a sea change in Veteran benefit policy. Though the primary goal of the bill is to extend VA benefits to Vietnam Veterans with certain medical conditions, it has repercussions for Veterans of every service background. These types of changes occur as lawmakers seek better ways for the United States to look after those who serve.
Keeping up with ever-changing VA loan rules is a challenge for lenders, not to mention borrowers who are interested in the process. Lender policy evolves along with the VA’s, and it remains to be seen just how much the new laws will affect Veteran borrowing over time. What is certain is that no matter how the VA loan rules evolve, the team of Veterans helping Veterans at SoCal VA Homes is committed to your homeownership success.