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Friday, 21 February 2020
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Agent Resource Center

Big Change for VA Loans in 2020

Written by Posted On Sunday, 26 January 2020 05:00

If you’re fortunate enough to be eligible for a VA home loan and your desire is to come to the closing table with as little of your own funds as possible, there really is no better choice. VA loans don’t require a down payment, don’t need monthly mortgage insurance on top of the overall house payment while providing as many loan choices as conventional loans. From 10 year fixed to 30 year terms to variable rate mortgages to hybrids, there’s quite a bit to choose from. VA loans have generally followed trends of other mortgage programs as it relates to loan types. For example, the maximum VA limit followed the conforming limits set by Fannie Mae and Freddie Mac. 

For 2019 the conforming limit was set at $484,350 for most parts of the country. Higher limits apply in areas where property values are much higher compared to other areas. These areas are labeled as “high cost” and can vary based upon location. In 2020, the conforming limit is set at $510,400. But that’s where one of the biggest changes for VA loans in 2020 come into play.

First let’s understand that the VA only issues lending guidelines and does not in any way approve a home loan. Instead, the VA approves lenders to underwrite and fund mortgages. As long as the lender approves the loan using VA standards, the VA loan is eligible for sale in the secondary market and the loan is guaranteed to the lender. Interestingly enough, even though there is no down payment needed for a VA loan meaning the buyer has no immediate equity in the property, VA loans rarely go into default. Zero down loans took a lot of heat beginning around 2008 when “no money down” loans were partly to blame for the mortgage debacle. Not so VA loans. They retained their stellar performance position throughout.

Okay, let’s jump back to the big change. The VA changed its policy stating there would be no loan limit for a VA loan in 2020, regardless of any Fannie or Freddie limits. This means a VA approved lender could fund a VA loan of $600,000 and still be able to sell the loan and retain the lender guarantee. How high could a VA loan actually be and still be VA-eligible? One might imagine the limit could be anything at all, and the VA would agree. A $1 million dollar VA loan? 

While the VA states there is no limit, mortgage lenders would likely balk at funding a million dollar loan without any down payment whatsoever. Yes, VA loans perform better than most programs, but still, that’s a lot of risk. Instead, the individual lender will set its own internal policies regarding approving a VA loan. And when one lender sets a limit, others will likely follow. The point is that even though there is no set limit for 2020, doesn’t mean a lender won’t impose one. In fact, you can bank on it.

There are some other minor changes to VA loans going forward. The funding fee will increase slightly, for example. But other than that, nothing major. Instead, the loan limits will see no VA limits. If a lender likes a loan and the loan is a bit higher compared to conforming ones, the buyers and the lender both can make the case for an approval. 

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