In June of 2019, President Donald Trump signed a bill into law allowing the VA to guarantee loans that exceed the county loan limits. Borrowing over the county limit has always been a thing, but there currently exists a formula calculating the maximum you can borrow. With the new law, this will CHANGE!
The bill, H.R. 299, enables homebuyers using a VA loan to borrow above the 2019 loan limits without any down payment. Correct, no down payment! Want to buy a home for $1,000,000 with no money down? No problem! How about $3,000,000? You bet! However, just like everything that sounds too good to be true, it probably is. In this case, there is most certainly a catch!
Catch #1. It's more expensive.
Funding Fees will be more. The VA is doing this to raise money for other programs and initiatives. Funding fees are expected to go up .3% across the board over the current. This will not affect anyone receiving disability income from the VA.
Note that receiving ANY amount of VA disability income causes the funding fee to be waived. This certainly isn't new news, but it's widely misunderstood so allow me to hammer this home. There no minimum disability rating for the funding fee to be waived. Any VA disability = NO funding fee!
Catch #2. The old formula still applies in many cases.
Currently if you are financing over the county loan limits (or if you have entitlement tied up) there is a "formula" to calculate the maximum loan amount. Under the new law the formula still comes into play if you have any entitlement "charged" on another home or for some other reason. The "VA Loans to Infinity" is only for those with full entitlement.
To calculate your maximum VA loan:
- Find out how much entitlement was charged from your Certificate of Eligibility. If entitlement charged is zero, then there is no limit.
- Check the county loan limit where you are buying and multiply that by 25%. This is your maximum entitlement.
- Take your maximum entitlement and subtract the entitlement charged. This is your available entitlement for the next purchase.
- Take the new purchase price, multiply it by 75% and add your "available entitlement" from step 3. This is your maximum base loan amount.
- Look up your funding fee on this chart. If you are getting disability income from the VA, then stop at step 4. Multiply your funding fee with the base loan amount number on step 4 and add that to your base loan amount. This is your final loan amount.
I've made the calculations really easy with a VA Max Loan Calculator which you can download for free on my website!
Catch #3. Restrictions will assuredly apply!
Perhaps the biggest catch to all of this is that we have no clue what borrower guidelines there will be. We expect the VA's "guidance" on or about 1/1/2020. With that said, I will pretty much guarantee that the following restrictions will apply.
- You will need a pretty good credit score to finance in the upper eschillon and that will scale as each lender sees fit. I'm betting 700 will be required north of the limits.
- I also expect a pretty hefty reserve requirement (i.e. 6-9 months of mortgage payments). The lender is going to want to know you have big bucks sitting in the bank if they are going to finance 100% of monster sales prices.
- Last and not least, I bet the rate is going to really stink as compared to the normal VA loan rate. The VA has hinted at this saying that they will "temporarily increase rates for certain loans by .15-.30%". I'm not certain if they just mean the funding fee, but regardless, history has shown that when there is more risk to the lender, the borrower ends up paying for it. Nothing new here, and like the old saying goes, "it's nothing personal... it's just business!"
It's still a good thing!
Although there are some catches, this is overall a really good thing for borrowers. The VA gets money for some pretty important programs and home owners are rewarded by being able to extend their VA Home Loan benefits well beyond where they've been in the past.
For more information, Housing Wire's Jessica Guerin wrote a nice article on this topic. Additionally, if you would like to know more about VA Home Loans in general, you can download my e-book VA Home Loan Secrets.