VA mortgage program undergoes big changesby Tim Manni
The post below was written by Chris Birk, director of communications for Veterans United Home Loans:
A bill signed into law last week by President Obama provides some much-needed updates to the VA home loan program that will benefit military widows, single-parent soldiers and service members with disabilities.
Much of the focus of this wide-ranging legislation falls on Camp Lejeune, a Marine Corps base that exposed military and civilian personnel and their families to contaminated drinking water for three decades.
While the “Honoring America’s Veterans and Caring for Camp Lejeune Families Act” extends health benefits to those sickened at the base, it also contains some landmark changes to the nearly 70-year-old VA loan guaranty program, which has helped more than 18 million veterans obtain government-backed mortgages since World War II.
Who will the legislation help?
Here’s a look at who this bipartisan legislation will help:
Surviving military spouses
Before this bill became law, military widows and widowers had access to the no-down-payment program only if their spouse died in the line of duty or of a service-connected disability. Not included were the countless spouses of disabled veterans whose deaths weren’t deemed service-connected. This bill closes that loophole and extends VA mortgage benefits to the spouses of veterans who simply had a permanent, service-connected disability for at least the last 10 years preceding their death.
The VA guaranteed mortgages for 1,261 surviving spouses last year.
Veterans with disabilities
The VA applies a fee to every purchase and VA refinance loan it backs. The VA Funding Fee helps fund the program for future generations and ensures it’s free of the Congressional appropriations process. Borrowers with a service-connected disability are exempt from paying this fee, which is typically financed into the loan.
But in recent years, the VA’s slow-moving medical system has created unintended consequences for mortgage seekers. Many service members preparing to leave the military wind up waiting months for an official disability rating after getting a pre-discharge exam. Those who purchase a home in the interim are assessed the VA Funding Fee, essentially forcing some borrowers into larger mortgages than necessary.
Under this omnibus bill, the VA will now waive the fee whenever a pre-disability exam determines a service member is eligible to receive disability compensation.
Military couples and single parents
VA homebuyers have to meet occupancy requirements tied to the program’s commitment to helping veterans obtain primary housing rather than vacation homes or investment properties. Until now, a spouse can fulfill that requirement for a military member serving abroad, but that does little to help single-parent soldiers and some married military couples. Now, a dependent child will be able to fulfill the occupancy requirement under this new legislation. Unfortunately, active service members without children will still struggle to meet the occupancy requirements while abroad.
Veterans in high-cost counties
Veterans in the nation’s most expensive areas lost some of their purchasing power last fall when the loan limits for government-backed mortgages fell from $729,750 to $625,500. These loan limits dictate how much a veteran can borrow without having to put money down.
This bill will reinstitute those higher county loan limits, which are now slated to sunset after 2014.
Veterans seeking alternative loan terms
Adjustable-rate mortgages were slated to disappear from the VA loan program at the end of 2012. The new legislation will allow ARMs and Hybrid ARMS to be staples of the VA loan program.
Chris Birk is a recovering journalist and the author of “The Book on VA Loans: An Essential Guide to Maximizing Your VA Loan Benefit.” He works as director of communications for Veterans United Home Loans, the nation’s leading dedicated VA lender. His work has appeared in dozens of publications, from the Chicago Sun-Times and the Huffington Post to Motley Fool and Mortgage News Daily. He also teaches journalism and media writing courses at a private Midwestern university.