Veterans’ Benefits Improvement Act of 2008 enhances VA loan guaranty program
Veterans like many Americans may be treading in rough economic waters. And, many homeowners fear that if they don’t keep afloat, the foreclosure wave could ultimately wash them under. For many VA-eligible borrowers who qualify, relief may be in sight now that new and better conditions have been established by the Veterans’ Benefits Improvement Act of 2008. Sponsored by Senator Daniel Akaka (D- HI), the bill was created to improve Veterans’ benefits, mainly compensation and pension, housing, labor and education, and insurance. The Act, signed by the president into law October 10, 2008, impacts the VA Home Loan Guaranty Program. By understanding these impacts, VA-eligible borrowers who qualify may get the VA refinance loans they need to lead them to clearer financial waters.
VA’s authority to guaranty Adjustable Rate Mortgages (ARMs) and Hybrid ARMs was set to expire this year. Under the new law, this authority has been extended through September 30, 2012. VA program requirements concerning ARMs and hybrid ARMs remain the same. Significantly, and unlike conventional ARMs and conventional hybrid ARMs, interest rates on VA guaranteed ARMs and VA guaranteed hybrid ARMs are limited each year, as for the life of the loans. The difference can mean a substantial benefit to veterans who qualify.
With regards to regular “cash out” refinancing loans, benefits are also enhanced considerably. A cash out refinance occurs when the new mortgage amount is more than the former mortgage amount — giving the homeowner cash out of the equity. Under the old law, cash out loans were limited to 90 percent of their appraised values. Now, regular cash out VA refinance loans can be made for up to 100 percent of the appraised property value.
The maximum loan guaranty amount for certain VA loans closed during the period of January 1, 2009 through December 31, 2011 has been increased under the new law. This change allows the Department of Veterans Affairs to help a large number of military personnel with subprime mortgages (obtained with less-than-ideal qualifications) to refinance with safer, more affordable, VA guaranteed loans. Veterans in financial white water due to high rate subprime mortgages are potentially the greatest beneficiaries of this Act.
Subprime mortgages have never been guaranteed by the VA loan program; however, VA can now help many more veterans with subprime loans by guaranteeing VA refinance loans. Because of the new law, the VA’s maximum loan amount for refinancing loans has been raised. The VA guaranty, previously set to apply toward a loan limit of $417,000, will now be available on loans of up to $729,750 depending on the location of the home for which the VA loan obtained.
The new law, designed to help qualified veterans maintain adequate or suitable housing and to protect veterans who may feel as though they’re on a sinking ship called the SS Foreclosure, can help increase loan-to-value ratios and raise the maximum loan amount available under the VA Home Loan Guaranty Program. When combined with new county-based Freddie Mac conforming loan limits in January 2009, VA’s maximum county “loan limit” may be as much as $1,094,625 ($1,642,037 in Alaska, Guam, Hawaii, and the Virgin Islands). This results in unique county “loan limits” for VA.
Generally speaking, veteran home loans can be easier to get than other conventional loans. First, they do not require private mortgage insurance (PMI); therefore, many VA-eligible borrowers who qualify can and have saved hundreds of dollars monthly. Second, because there is no down payment required, VA home loans make a lot of sense. Third, VA loan qualifications can be less stringent compared to conventional loan qualifications. And, now with the new laws put in place by the Veterans Benefits Improvement Act of 2008, a VA home loan can be even more beneficial to eligible borrowers drowning in debt.
Though VA loans are guaranteed by the Department of Veterans Affairs, they are funded and serviced by approved independent mortgage lending institutions which must ultimately agree to the terms of each loan.
Altogether, the changes under the new law for VA home loans can translate to a tremendous benefit for VA-eligible borrowers who qualify. By understanding all the benefits associated with this new law, veterans might perhaps tread a little easier.
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