2015 VA Loan-Limit Rollbacks May Have Minimal Impact

Home loan signature line.

Many returning veterans rely on loans backed by the U.S. Department of Veteran Affairs to purchase homes. There are many advantages to VA loans, and one of the biggest is that down payments are not required. However, VA has set limits on how much of a home's value they'll back. Veterans who purchase homes that cost more than the limit for a given area will need to put down a percentage of the difference. These limits have always been fairly high, but in 2015 they are heading in the opposite direction. But, according to Scotsman Guide, the rollbacks won't have a noticeably adverse impact on home-buying veterans.

Back in 2008, Congress had authorized VA loan limit increases, but these were not renewed in a spending bill passed in December of 2014. The new limits are in light with those set by the Federal Housing Finance Agency.

The initial numbers are fairly bleak. 82 counties will have lower loan limits for 2015, and some of the limits have been reduced by roughly 40 percent. However, the important piece of data to note is that the counties most likely to be affected by this are in Virginia, Maryland, and around Washington D.C. Furthermore, these impacts will be minimal according to Laurie Goodman and Jun Zhu, researches from the Urban Institute.

Unfortunately for veterans in Virginia, Alexandria will be the hardest hit by the rollbacks. Goodman and Zhu discovered that the top six affected areas were in Virginia, and of the top 15 only five, including Calvert country, Maryland and San Benito County, California, were in other parts of the country. The researchers analyzed all the VA loans in each county and counted how many would exceed limits set in 2013. The new limit for the area is $625,500, but only 1.04 percent of mortgages from 2013 passed that limit.

While Virginia got hit hard in terms of number of veterans affected, the steepest decreases took place in San Francisco and surrounding areas. The loan limits were $1.05 million in 2014, but have been scaled back to $625,500 for 2015. But, these areas are not as densely populated by veterans as Virginia, therefore fewer will actually be affected. For example, Marin Country, California housed 12,996 veterans as of September 2014 whereas Fairfax County, Virginia was home to 76,229. According to Scotsman Guide, 0.68 percent of veterans may be affected in Fairfax versus 0.34 percent in Marin County.

"While the effect of the loan-limit change is small nationwide, it could potentially have a more noticeable impact in communities where veterans are concentrated, and where the cost of homes is relatively high," concluded Goodman and Zhu. "Virginia is the prime example of this; but even there, effect is very modest."

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