Plenty of military members are buying real estate and making plans for the future. And while mortgage rates very appealing right now, affordability in general can still be a deterrent from buying.
To remain in the home buying game, veterans usually first consider using the VA loan benefit they are entitled to. Favorable interest rates and the lack of a required down payment are two of the major reasons veterans choose this type of home financing.
Over the last two years, the VA made significant changes in policy that have increased the opportunity for military home buyers to achieve their home goals. In 2018, the VA introduced a rehab loan specifically designed to open up the possibilities of buying a home in need of repairs. Then this year, the VA increased their guarantees to encompass a more realistic view of what real estate actually costs across the country.
The VA Renovation loan, also referred to as the VA Rehabilitation loan, allows service members to buy a house that is in need of repairs. Fostered from the lack of affordable, move-in ready houses, the VA now offers the chance for a veteran to update the property and meet the VA’s Minimum Property Requirements (MPR).
Previously, a traditional VA loan mandated that the MPRs had to be in place before the purchase could go through. With the availability of the VA rehab loan, the service member now has the opportunity to find a cost effective fixer-upper and use their benefit to finance the improvements.
Several years of a tight inventory coupled with an overabundance of older housing in need of substantial updates prompted the VA to step in and offer this type of loan option. Although the VA is providing assistance to improve older homes, there are guidelines to be met with the supervision of the VA along the way.
For clarification, the VA rehab loan is different than a VA supplemental loan, which is also often considered to finance improvements. The VA rehab loan is separate from the original purchase loan, but they are bundled together to produce one mortgage rate and one monthly payment.
There’s more upcoming good news for home buyers. The VA made changes in their loan guarantee limits, which will certainly be helpful for those who've been previously priced out of a boisterous seller’s market. The first were enacted in 2019, and the newly-signed-into-law changes start on January 1, 2020.
Guarantee limits do not restrict the amount of money you can borrow to buy a home, but act as a limit on how much the VA is legally allowed to guarantee without a down payment.
Here’s a quick overview of the changes for 2019:
To review the exact numbers produced by the changes, the federal government provides the chart Fannie Mae and Freddie Mac Maximum Loan Limits for Mortgages for reference (the VA uses the same numbers). The chart describes loan limits in your area, breaking states down by county.
The Blue Water Navy Vietnam Veterans Act was established to offer more care and benefits to Vietnam Veterans who served off the shores of Vietnam and suffer from war related illness. They are known as “Blue Water” Veterans.
Part of this new legislation removes the guarantee loan limits on mortgages calculated by Freddie Mac. In 2020, the VA will make the maximum guarantee of 25% of the loan amount. No down payment is needed for home purchases beyond $484,350.
Here’s more of what the new legislation brings.
As of now, the higher fees are to stay until January 1, 2022, then revert back, but this could change as the details of the legislation are hammered out.
Worth noting: whether applying for a traditional VA loan or VA renovation loan, buyers often run into trouble connecting with lenders who offer the program and/or have professionals who are familiar working with government in this way. Using referrals from trusted friends and family is a smart first step, but these loans require expertise. Interview multiple lenders to get a feel for how comfortable they are with the entire loan process to ensure your very best outcome.