Guide to 2020 VA mortgage loan changes

2020 VA loans: No size limits, new funding fees

The VA mortgage program will change in 2020.

Arguably the best loan program out there, the VA mortgage will get even better for many when these changes take effect.

In 2020 it will be easier for VA-qualified vets to get jumbo loans. At the same time, some VA funding fees will go down. But some will also go up.

Here’s what it means for you.

In this article:

• New VA loan limits
• Changes to VA entitlement
• New VA funding fees
• Fees for purchase and construction
• Fees for cash-out refinance
• Funding fee exceptions

New VA loan limits (or rather, no VA loan limits)

Starting January 1, 2020, the Department of Veterans Affairs will no longer cap mortgage amounts for veterans with zero down.

That means military members and veterans — at least, those who are qualified for VA loans — will no longer have to worry about exceeding loan limits. Eligible borrowers will be able to get the home loan they need, even with a zero percent down payment.

>> Related: VA mortgage eligibility guide

This is good news for borrowers in high-priced metros. Previously, veterans buying in areas like New York, Los Angeles, D.C., and Seattle, were at risk of exceeding zero-down VA loan limits. But no longer.

Eligible military members and veterans can now use the maximum loan amount they qualify for without putting any money down.

Changes to VA entitlement

VA mortgage loan limits are disappearing thanks to changes to the VA entitlement.

VA entitlement is the code that allows veterans and military members to borrow with zero down. And until 2020, VA entitlement essentially capped VA loans at the same dollar amount as conforming loan limits.

But the 2020 rule does away with those limits.

Here’s what that means.

How VA entitlement used to work

Most loan programs have mortgage size limits. But the VA mortgage program never did. At least, in theory.

If you want to get an FHA mortgage or a conforming loan — a mortgage based on Fannie Mae or Freddie Mac rules — there are set loan limits.

No matter how good your credit, how big your income, or how much you put down, you can only borrow so much with these programs. Loan limits depend on where the property is located and how many units it has.

But with VA mortgages, the system is different.

The previous rule allowed qualified VA borrowers to buy up to the “conforming” (a.k.a Fannie/Freddie) loan limit in their area with zero down.

In most areas, a $ loan limit for a single-family home is fairly common.

VA borrowers used to have to make a down payment on loans exceeding the local conforming loan limits. But the 2020 VA loan update does away with that rule.

If the home being purchased exceeded that amount, the VA borrower would have to make a down payment. Down payments were equal to 25% of the purchase price over the conforming loan limit.

For example:

If the local loan limit was $484,350 and a vet qualified for a $600,000 loan, the VA wouldn’t guarantee the $115,650 that went over the limit.

So the VA borrower would have to make a down payment. In this scenario, their down payment would be equal to 25% of $115,650 — which comes out to almost $29,000 paid upfront.

But under the new rule, the VA will guarantee the full $600,000 loan amount — as long as the borrower is qualified.

Remember, you still have to qualify for the loan

It may seem obvious, but it’s worth stating.

The VA doing away with loan limits doesn’t mean that any vet will be able to qualify for any size home loan.

The maximum sum any home buyer can finance will still be determined by lenders.

As always, loan approvals will be dependent on such factors as income, debt-to-income ratio, and credit scores.

You can check what size VA loan you qualify for using the link below.

New VA funding fees for 2020

The Blue Water Navy Vietnam Veterans Act gets rid of down payments for big VA mortgages.

It also raises some required fees and lowers others.

Remember — the VA mortgage program is a loan guarantee plan. It is not insurance and therefore there are no mortgage insurance premiums. If you’re qualified for a VA mortgage, you will neither pay an upfront insurance fee, nor a monthly insurance premium.

Instead, most vets pay a one-time, up-front funding fee.

And those funding fees will be changing for new VA borrowers in 2020.

No more active duty division

Under the old VA fee system, there was one set of funding fee rates for “regular” military and higher fees for those in the Reserves and National Guard.

Under the new system, everyone pays the same rate, whether they are active, Reserve, or National Guard.

New fees

Under both the old system and the new one, the size of the VA funding fee depends on the down payment amount.

The cut-off points are zero down, 5% or more down, and 10% or more down.

The more money you’re able to put down, the lower the funding fee.

Purchase and construction loans

As mentioned previously, VA borrowers will pay equal funding fees regardless of military status.

Here is the old VA funding fee schedule and the new one.

Former VA funding fees (2019 and previous)

New VA funding fees (starting January 1, 2020)

If you compare the two schedules some important changes stand out.

The funding fee for regular military has increased for both the first users of the VA program and repeat users — regardless of down payment amount.

Let’s look at a couple examples of how that could play out.

Smith, now on active duty, used to have a 2.15% funding fee for financing with zero down. The new fee is 2.3%.

For a $200,000 loan and first use of the VA mortgage program, the funding fee increases from $4,300 to $4,600. This is a $300 increase.

But the funding fee for those in the Reserves and National Guard has gone down.

Jones, now in the National Guard, had a 2.4% funding fee for first use of the program. The fee is now 2.3%.

For a $200,000 mortgage the funding fee goes from $4,800 to $4,600. This is a savings of $200.

So depending on your military status, and whether you’re a first time or repeat VA borrower, these changes could be good or bad news.

But either way, the change isn’t all that significant for most applicants.

VA mortgage cash-out refinancing

The VA has a separate set of funding fees for cash-out refinancing. The old and new fee schedules look like this.

Former VA cash-out refinancing fees (2019 and previous)

New VA cash-out refinancing fees (starting January 1, 2020)

For cash-out refinancing, the fee has gone up for active-duty military.

For those in the Reserves and National Guard, the funding fee has gone down for first use of the cash-out program, but up for repeat uses.

Here are examples:

Wilson, on active-duty, replaces a $150,000 FHA loan balance with a new $200,000 VA loan. Her funding fee goes from 2.15% to 2.3%. For the $200,000 mortgage the fee increased from $4,300 to $4,600 — a $300 addition.

Johnson, a member of the U.S. Army Reserve, does the same transaction. The funding fee is reduced from 2.4% ($4,800) to 2.3% ($4,600). He saves $200.

So, as with purchase and construction loans, the new cash-out refinance fees will affect you differently depending on your military status.

Other VA loan types

There is no change to funding fees for streamline refinances, assumptions, or non-affixed manufactured homes.

VA streamline refinances (IRRRL) & assumptions:

Manufactured home loans not permanently affixed:

Funding fee exceptions for the VA mortgage

There are several situations where borrowers do not pay a funding fee, according to the VA.

• Veterans receiving VA compensation for a service-connected disability;
• A Veteran entitled to receive VA compensation for a service-connected disability, but receives retirement pay or active service pay;
• The surviving spouse of a Veteran who died in active service or from a service-connected disability;
• A servicemember on Active Duty who provides, on or before date of loan closing, evidence of having been awarded the Purple Heart

For details and specifics, speak with loan officers who are familiar with the VA program.

Check your VA loan eligibility today

Changes to the VA loan program is 2020 will benefit certain borrowers more than others.

VA borrowers in high-priced metro areas may now be able to buy a home with zero down.

And for members of the Reserves and National Guard, funding fees will generally go down. That means less money at the closing table.

Other VA borrowers might not be impacted as much by 2020 changes.

But even so, the VA mortgage program is still one of the best home loans out there. If you’re eligible, it will likely be your cheapest and best loan option.