VA Loan Limits for most of California have tended to be higher than many parts of the country. But still, with home prices quite often higher than the local county loan limit, California Veterans were forced to come in with some down payment in many situations. Changes are coming for 2020. The 100% financing limits are going away. This will make it possible for a Veteran to buy a home at any price (theoretically) with $0 down payment.
Blue Water Navy Veterans Act of 2019
The Blue Water Veterans Navy Act of 2019 (almost sounds like something out of a Jason Bourne movie) was signed into law in June 2019 and will be effective on January 1, 2020. This law eliminates the Zero Down VA Loan Limits. It also increases the VA Funding Fee.
Up until now (January 1 2020) VA loan limits have been tied to the FHFA limits set each year. A Veteran could buy a home with $0 down payment, but only up to the county loan limit. If the purchase price was above the loan limit then the California Veteran needed a down payment equal to 25% of the difference between the loan limit and home price. The resulting VA loan was commonly referred to as a "Jumbo VA Loan". This was still a very good deal for the Veteran and allowed for less down payment and no mortgage insurance than any other type of loan program.
Comparing 2019 Loan Limit Purchase vs 2020 No Limit Purchase
The 100% Financing VA Loan Limit in Orange and Los Angeles counties is $726,525 in 2019. A Veteran can buy a home up to $726,525 with no down payment. If the purchase price is $926,525, or $200,000 above the 2019 loan limit for Orange and Los Angeles counties, then the down payment required would be $50,000 (25% of the $200,000 difference) and the VA loan would be $876,525. In 2020, a Veteran purchasing a home for $926,525, or even $1,000,000, will not need a down payment at all. This will allow the Veteran the keep more money in the bank.
The standard "Conforming" VA loan limit in 2019 is $484,350. Riverside and San Bernardino counties have been subject to this limit even though there area many areas where homes sell above the limit. For example, a Veteran purchasing a home in Corona (in Riverside County) for $584,350 ($100,000 above the 100% limit) in 2019 would need $25,000 down payment. In 2020, they will not need a down payment. This will open up many areas of the Inland Empire and will help property values as well.
VA Funding Fee Increase
The VA Funding Fee will be increasing in 2020 as part of the Blue Water Navy Veterans Act of 2019. The VA Funding Fee is typically financed into the loan and disbursed to VA. It is mostly used by VA to guaranty the the VA loan for the lenders who are actually closing the loans. It is important to note that VA is not a "lender" and does not fund VA loans. VA guarantees the loan as long as it is underwritten to VA guidelines. And not all mortgage companies offer the VA loan program.
Currently, in 2019, the VA Funding Fee for a first time VA buyer is 2.15% of the loan amount. (this can vary depending on whether the Veteran eligibility, and whether they are eligible due to time in the Reserves or National Guard, or were Active Duty). The new VA Funding Fee in 2020 will be 2.3% for 1st time users. The Funding Fee for subsequent users will be 3.6% versus the 3.3% it currently is in 2019. In 2020, the Funding Fee will be the same for all eligible Veterans, whether they were National Guard or reservists, or regular military.
VA Funding Fee Waivers
For those Veterans with a service connected disability rating the Funding Fee is waived. And starting in 2020, active duty service members who have received a Purple Heart will also be exempt from the Funding Fee. The Funding Fee can also be reduced by putting 5% or 10% down. For a subsequent user in 2020, the VA Funding Fee can be reduced from 3.6% down to 1.65% with 5% down or 1.4% with 10% down.
As mentioned earlier, the VA Funding Fee can be financed into the loan, meaning it will not affect the amount of money needed by the Veteran to buy a home. But still, if a subsequent user is selling a home and will have equity from the sale for their next purchase, by putting 5% down on a $500,000 purchase the VA Funding Fee will be reduced from $18,000 down to $7,837. The resulting loan amount with 5% down ($25,000 down payment) would be $482,837. The resulting loan with $0 down would be $518,000. So with $25,000 down the loan amount difference is $35,163. The payment difference will depend on the interest rate of the loan, but could easily be between $150 and $175 per month. For a subsequent VA loan user who has the option of coming in with some down payment, that would be something to think about.
To truly know what is the best option for you, contacting a loan officer who specializes in the VA loan program is your first step.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Fairway Independent Mortgage Corporation NMLS 2289. My direct line is 714-478-3049. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process