2020 Changes
Starting in 2020, U.S. military veterans will be able to qualify for more expensive home loans without having to come up with a down payment. When it comes to home loans, there’s a dividing line between conforming loans and jumbo loans. The maximum amount for a conforming loan right now in Mendocino County it is $510,400, and any loan greater than that is considered a jumbo loan. Jumbo loans are harder to get because they have stricter guidelines, often including a bigger down payment, a better credit score, and a lower debt-to-income ratio.
Until January 1, 2020, if you were a veteran who qualified for a VA loan, you could only get 100 percent financing (zero down payment) on a conforming loan. If you wanted a loan greater than $510,400, you had to come up with a down payment representing 25 percent of the difference between $510,400 and the purchase price of the home you wanted. For example, if you wanted a $600,000 purchase, you’d have to come up with a down payment of $22,400, which is 25 percent of the difference between $600,000 and $510,400.
New Rules
Under the new rules, veterans can get a loan amount based on what they can qualify for and are not bound by conforming loan caps. Veterans do not need to come up with any down payment, even if they want to purchase a more expensive home with a bigger loan. However, banks can still put in some restrictions to protect themselves against defaults. Ginny Richards at Stearns Lending said Stearns would require a minimum credit score of 660 to qualify for a jumbo VA loan without a down payment. Other banks may require a lower debt-to-income ratio.
Blue Water Navy Veterans Act of 2019
In other veteran-related home loan news, the Blue Water Navy Veterans Act of 2019 provides service-connected disability benefits to veterans who served in the offshore waters of Vietnam and in some cases, their surviving family members. Blue Water Navy veterans are now eligible for many VA disability benefits because of their exposure to a multitude of herbicides during their service in the Vietnam War. The benefit to the lending side is this: if veterans get VA disability then lenders can use that income to qualify the veteran for a home loan. Additionally, the VA usually waives the funding fee for veterans with a service-related disability.
Other Changes
While we’re on the subject of VA loans, it is worth noting a few other changes. First, there is no longer any difference between fees for regular military versus Reserve personnel. Prior to January 1, regular military personnel using VA benefits to purchase a house for the first time with 100 financing paid a funding fee of 2.15 percent, while a Reserve or National Guard member would have paid 2.4 percent of the loan amount. Now, the funding fee is 2.3 percent whether you are a regular or Reserve member. Also, if you are an active duty service member who earned a Purple Heart, your funding fee can be waived if you close on the home while still serving on active duty.
VA Native American Direct Loan
Finally, for lenders that can lend on Federal Trust land, a new law removes the loan limit of $80,000 for veterans using their entitlement for a VA Native American Direct loan to build or purchase a home on Federal Trust land. Eliminating the loan limit enhances access to home loan benefits for Native American veterans
So, if you’re a veteran who has been thinking about purchasing a home without a down payment but you didn’t want to be restricted to the conforming loan limit, maybe it’s time to start house hunting.
A big thank you to Ginny Richards from Sterns Lending for the details for this article.
If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.
Dick Selzer is a real estate broker who has been in the business for more than 40 years.