If you’re searching for evidence that it’s possible to make a good thing even better, take a look at the U.S. Department of Veteran Affairs’ VA loan program. Created with the goal of helping veterans become homeowners, this popular loan program has long offered qualifying borrowers some amazing advantages. Now, the new updates to VA loan limits (courtesy of the Blue Water Navy Vietnam Veterans Act of 2019) are creating even more opportunities for would-be homebuyers.
What You Need to Know About Updates to VA Loan Limits
How do VA loans work? As Investopedia explains, the VA doesn’t actually make loans. Instead, it provides a partial guarantee to private lenders who make loans that follow the guidelines laid out for VA loans. This government backing substantially reduces the inherent risk of loaning money, so lenders are able and willing to offer borrowers who opt for VA loans appealing terms like the following:
- Competitive interest rates
- Up to 100-percent financing
- Flexible guidelines that make qualifying easier
- No requirement for private mortgage insurance
- No prepayment penalties
- Limited closing costs
- Consumer protections and assistance for those at risk of defaulting
The Evolution of VA Loan Limits
As ArmyTimes reports, when the VA loan program first started back in 1944, the maximum loan guaranty was just $2,000. Naturally, the program had to grow and evolve to keep pace with the marketplace in order to remain a viable option. So it’s no surprise that there have been numerous changes over the loan program’s 75-year lifetime. By 2019, qualified borrowers with full entitlement were able to borrow up to $424,000 without making a down payment in most places; the threshold was higher in certain high-cost areas. Unfortunately, even these loan limits sometimes made it hard for veterans to compete effectively for desirable properties in hot markets.
The Blue Water Navy Vietnam Veterans Act of 2019 puts an end to VA loan limits for many eligible borrowers. As NerdWallet reports, the bipartisan law eliminates these established limits for eligible borrowers who still have their full VA loan entitlement. Borrowers who already have an active VA loan or who have lost part of their entitlement by defaulting on a previous loan will still be subject to VA loan limits, which traditionally mirror the ones set by the Federal Housing Finance Agency on conforming loans.
What the End of VA Loan Limits Means for Borrowers
How will these updates to VA loan limits affect borrowers? As The Mortgage Reports explains, ending limits gives borrowers more options, but it’s not a blank check.
In the past, the VA would provide a 25-percent guaranty for qualifying loans up to the established loan limit. Anyone who needed to borrow more than the loan limit could still get a VA loan, but they had come up with a down payment equal to or greater than the difference between the limit and their loan’s total. With the VA loan limit lifted for qualifying borrowers, they can now get 100-percent financing for a loan of any size. As a result, borrowers won’t need to have a ton of cash on hand to stand a chance at purchasing a home in a competitive market. However, the end of loan limits isn’t a free pass to spend blindly. While VA loans are famous for their relaxed credit standards, borrowers using VA loans have always had to prove to lenders that they have the income and resources to get approved for their loan. That requirement remains in effect.
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