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What are the pros and cons of a VA Loan? 

Have you heard about the latest updates to VA Loan policies? 

Check out this post to gather a bit of info. about important military benefits for homebuyers.

So far so good! This new year of 2020, is bringing excitement and fresh opportunities. For instance, if buying a home was a New Year’s Resolution, the VA Loan continues to be a steady option for financing for Veterans and military. Curious about why landing a loan from the United States Department of Veterans Affairs is such a popular choice? Follow along with this brief list of pros and cons - 

One

• Pro

There’s no need to stress over how much money to put down. No down payment is expected.

• Con

The loan does come with funding fees. In 2020, those funding fees did rise a bit.

Two

• Pro

Any concerns over Private Mortgage Insurance can disappear. No PMI beeswax is included. 

• Con

This loan fits best for those purchasing their primary residence. This guideline can be an issue for those with PCS plans and hoping to buy again at their upcoming duty station. (However, a second VA Loan is possible, depending on how much of the member’s benefit remains.)

Three

• Pro

Even if the homebuyer has a credit score that is a “work in progress”, they may still be eligible.

• Con

A home seller might not not have confidence in a buyer with an uneven debt to income ratio.

Four

• Pro

If the homebuyer chooses to pay additional funds to pay down the mortgage, there is no prepayment penalty.

• Con

In most cases, to land another VA Loan, the homeowner must pay off the loan and sell the home. (Although, if the member has enough entitlement left, they could use the VA Loan option again.)

This basic list is a quick glance at why the VA Loan is a fan favorite of any who’ve buttoned a uniform.

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What’s New?

Circling back to point One of the pros and cons list - We’ve made it to 2020 and things have changed in the world of funding fees. 

Hold up - Wondering what on earth a funding fee may be? Here’s the dish - In order to keep the VA Loan program going strong, the United States Department of Veterans Affairs tacks on a cover charge to every homebuying or home refinancing loan. This charge is a percentage of the loan amount. The tally of the expense will differ depending on -

• What type of VA Loan the homebuyer is applying for

• If they are able to put any money down as a down payment

• If the buyer is new to using a VA Loan or if it’s their second (or third) time around

Of course, there are exemptions to this loan fee and the Veterans Affairs Benefits website highlights those exceptions.

After the smoke from the fireworks cleared on January 1, 2020, the powers-that-be changed up the VA Loan funding fee to 2.3% of the borrowed amount of a VA home loan (up from 2.15%). If the buyer is using their VA benefit for the second time, the ante rises to 3.6% (up from 3.3%). 

The rules of the game still apply and when it comes time to close on a house, the buyer will either -

• Pay this slice (in cash)

• Ask the seller to pay this percentage

• Roll this bite into their VA Loan (Side note: This funding fee is the only closing cost a buyer can add into a VA Loan)

If the buyer has wiggle room in their budget, it makes good sense for them to place at least 5% down to ease the pinch of the funding fee. This handy table from Veterans United crunches the numbers :

All of this is possible with the introduction of the 2020 Blue Water Navy Vietnam Veterans Act. The money earned from the raise in fee percentages will go towards disability benefits of Vietnam Veterans and their families who have on-going issues due to AgentOrange exposure.

But wait, there’s more!

One more perk from the changes a foot in this shiny new year is a shift in VA home loan limits. 

As stated in the pros and cons list shared here, a VA Loan does not require a down payment. However, in the past, if a homebuyer had their heart set on a house with a price tag that was more than the current FHA limit, a down payment was a “must have” when financing with a VA Loan. 

Starting on New Year's Day, January 1st, 2020, there is no longer a limit on the size of a loan a Veteran can apply for. This new legislation allows higher value homes to be within reach of financing for worthy Veterans. Wheee! Look out McMansion! Good folks will be moving in and proudly raising their American flag! Now, a lender could still put a cap on a buyer’s spending limit, but it won’t be a VA Loan thing. 

For the full scoop on the many good things already in the mix in this New Year, reach out to a real estate professional at The Litton Group of San Antonio, TX.

Sources:

1.“things have changed” https://www.benefits.va.gov/HOMELOANS/documents/docs/funding_fee_table_01012020.pdf 2. VA Benefits website https://www.benefits.va.gov/homeloans/purchaseco_loan_fee.asp 3. Veteran’s United < do you want to go with this co? Or have another co you prefer? Am sure many have easy to read tables https://www.veteransunited.com/education/library/va-funding-fee/ 4. VA home limits https://www.realtor.com/news/trends/bye-bye-va-loan-limits-what-this-means-for-veterans-buying-a-home/ Info from https://www.military.com/money/va-loans/6-unbeatable-benefits-of-va-loans.html https://www.military.com/money/va-loans/new-law-allows-you-get-bigger-va-home-loan-without-down-payment.html https://www.nerdwallet.com/blog/mortgages/va-home-loan-limit-and-funding-fee-changes-2020/ https://blog.militarybyowner.com/do-you-know-about-these-va-loan-changes