It might soon be possible for Veterans to buy homes priced at one million dollars or more with no down payment using their VA loan benefits.
It would take an Act of Congress, but a bill calling for an end to VA loan limits passed the House of Representatives on February 9, 2016 and is on to the Senate. The bill known as H.R. 3016 “Veterans Employment, Education, and Healthcare Improvement Act” could enable more Veterans to take advantage of the zero-down-payment feature of VA loans.
VA loan limits have long been a staple of the VA home loan benefits program. Traditionally, the limits established caps of the amount of loan for which the VA could provide its guaranty. The VA backing has provided security for lenders on Veterans’ loans up to that set dollar amount. Eligible borrowers could get loans over the limit, but were required to make a down payment on the overage. In most areas, limits are currently $417,000, but are higher in some high cost areas like certain counties in California and Hawaii. MORE INFO on VA loan limits here.
In a House Veterans Affairs Committee Hearing on February 10, 2016, U.S. Congressman Ryan Costello, who represents the 6th District of Pennsylvania, praised the VA program for its low foreclosure rate and its landmark 22 millionth loan. He also expressed some areas that could use improvement. He explained that not all Veterans are on a level playing field when it comes to the zero down payments, especially in communities where homes cost more. Costello said, “….I am also concerned that the current cap on VA loan guaranty amounts excludes as many as 12,000 Veterans who live in high-cost areas from using this benefit….”
A change to VA loan limits could make a vast improvement for Veterans living in higher cost housing communities. Currently, for many veterans who are seeking to purchase a home in high cost areas, the Freddie Mac limit is too low for VA's zero-down loan program. This either forces the veteran to use another program, or pay their VA loan principal down.
If President Obama signs the bill, there will be no cap on the amount of loan the VA will guarantee as long as the Veteran meets qualifying standards. For Veterans, this means that even in the highest cost areas, like San Francisco where the loan limit is $625,500 but the average home costs around $950,000, the most expensive homes can potentially be obtained without a down payment as the VA is willing to back 25% of loans in any amount for qualified borrowers.
The new law may also force lenders to better define their guidelines when it comes to “jumbo” VA loans. This may in turn create a more competitive market when it comes to larger VA loans.
So why are some Veterans cheering? Josh Cleghorn is an Army Veteran who flew Apache helicopters in Iraq. A few years back, he bought a big house priced over the VA loan limit in his Idaho county. He had to pay around $6,000 cash in the form of a down payment to back the portion of the loan that was not guaranteed by the VA. Having just started a backcountry hunting gear company called Kryptek, it was hard for Josh to come up with that kind of cash.
Today, Josh’s camo business is off and running, but what cash flow he has now is quickly socked away in college savings accounts for his four children. Still, Josh dreams big. He says, “I plan on buying a home in the $800,000 range in a year or so, and I am very interested to know that I may have zero-down-payment options on a loan this size.”
For Veterans like Josh, who can qualify for larger mortgages, the new law will make a big difference in the amount of cash they may have to come up with when they close their loans. Leaving them more of their hard-earned cash to invest, save or use for their children’s college education or their own retirement.
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Veterans First is a trade name of Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., a Wintrust Community Bank. I NMLS# 449042 I Equal Housing Lender