A newly signed law improves VA loans for many potential borrowers.  On August 6, 2012 President Obama penned his name to The Honoring America’s Veterans and Caring for Camp Lejeune Families Act(H.R. 1627).  The long-awaited bill deals with medical conditions caused by tainted well water consumed by families stationed at the Marine base in Camp Lejeune, North Carolina between 1957 and 1987.  The signed legislation also makes some improvements to veterans benefits, like VA loans.

Major VA Loan Improvements:

More Surviving Spouses may be eligible for VA loans.  Previously, surviving spouse eligibility was based on the veteran’s death while on duty or death caused by a service-related disability. Now, the veteran’s death doesn’t need to be military related at all.  As long as the servicemember lived for a time outlined in the Bill with a service-connected disability eligible for compensation, the surviving spouse may be eligible.

Dependents can now satisfy VA loan occupancy rule.  VA loans require owner occupancy. The rule has been especially challenging for military members serving away from home.  In the past, only a spouse could live in the home in a service person’s stead and still satisfy the requirement.  This made it challenging for certain military members – particularly single parents and married couples serving overseas.  The new law allows for dependents of certain VA borrowers to live in a house financed with a VA loan to satisfy the occupancy rule.

ARMs and Hybrid ARMs forever!  An Adjustable Rate Mortgage or ARM can be a great way for borrowers to get an initially low interest rate below the national average.  The loans are especially beneficial to homeowners planning to move before their ARM rates adjust higher. Service members often get relocated and have enjoyed ARMs for years.  A previous law had VA ARMs and hybrid ARMs set to expire at the end of 2012.  As a result of H.R. 1627, both are now a permanent part the home loan program backed by the U.S. Department of Veterans Affairs.

“Unofficial” disabled Vets may be exempt from VA funding fee.  Almost all borrowers pay a funding fee between .5% and 3.3% when taking out a VA loan. In the past, VA funding fee exemption was given to those “officially” deemed by the government as disabled veterans eligible for compensation. Those who needed VA loans before the official rating came through would be charged the fee upfront and apply for a refund later when they received their disability status. Under the new law, disabled veterans may get the waiver based on their pre-discharge disability exams alone. This saves some vets time (often months) waiting for their official rating from the government. Thanks to the new law, the waiting is over.

VA loan limits reinstated.  As a result of the Veterans Benefits Improvement Act of 2008 sign by President Bush, government-backed VA and FHA loan limits were raised to $729,750 to allow veterans to buy homes in high-cost areas with nothing down.  But, Congress let the zero-down VA loan limit drop to $625,500 on January 1, 2012, even in expensive military towns like Prince William, Virginia. This affected the way VA calculated its guarantee. And, as a result, many areas saw a decrease in maximum guarantee amounts. For instance, in Prince William the loan limit dropped dramatically from $818,750 in 2011 to $625,500 in 2012. Meanwhile, FHA loan limits went back up to $729,750 for 2012. This forced many veterans living in pricier places to seek FHA loans to purchase homes in high-priced communities, but they had to make sizable down payments.  The new bill, H.R. 1627, makes the VA limits of 2008 good through 2014 and will allow VA-eligible borrowers to use their zero-down VA benefits again to buy homes in high-cost areas.

For more on VA loan improvements as a result of this law, contact an approved lender.

by Kristine Anderson Wylie

This post contains only a brief summary of HR 1627 and changes pertaining to the Department of Veterans Affairs VA Home Loan Guaranty Program. For specific details regarding the new law, please visit http://www.govtrack.us/congress/bills/112/hr1627.