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Veterans' benefits law eliminates cap on VA loans

Thanks to new legislation approving disability benefits for veterans exposed to Agent Orange, the Department of Veterans Affairs (VA) is now able to back loans that surpass the conforming loan limit.

Military personnel holding housePresident Donald Trump has signed the Blue Water Navy Vietnam Veterans Act into law after it was unanimously approved by the Senate earlier this month. The bill’s primary effect is to grant VA disability benefits to illnesses linked to Agent Orange exposure during the Vietnam War, specifically for personnel who served on ships off the Vietnamese coast (known as “Blue Water” veterans).

But one of the bill’s other provisions allows homebuyers using VA loans to borrow above the 2019 limit of $484,350 (in most counties) without any downpayment.

Raising the loan cap was enacted by lawmakers as a way to raise funds to financially support the increase in benefits provided by the new law. Previous versions of the bill were stalled because, before, those benefits would have been paid for by raising VA loan fees 0.35% to 0.5% for non-disabled veterans. That plan would have been costly, in particular, for younger veterans using the VA loan program to buy homes — in many cases, for the first time.

This original plan met with outspoken criticism from several trade groups, as well as members of the housing industry who had previously served in the military.

“We firmly believe that mortgage borrowing costs should not be increased to pay for non-housing-related expenditures,” wrote the Mortgage Bankers Association in a letter to the Senate Committee on Veterans’ Affairs in August 2018. “The loan fees charged to veterans should reflect the credit risk associated with the VA guaranty, and any fee increases that are unrelated to this risk unnecessarily raise the cost of mortgage credit for veterans.”

“NAR believes that VA loan guarantee fees should be based on the risk of the loan made, and not the costs of other VA programs or benefits,” affirmed Elizabeth Mendenhall, former president of the National Association of Realtors, in the organization’s own July 2018 letter.

After the change eliminating loan cap was made, the housing industry reacted much more favorably to the bill, applauding the government for enacting the legislation.

“As we aim to ensure our nation’s veterans have every possible opportunity to achieve the American Dream of homeownership, the National Association of Realtors has remained a strong supporter of the VA home loan guaranty program,” said current NAR President John Smaby. “This vital tool encourages private lenders to offer favorable home loan terms to qualified veterans and provides a much-needed resource to those who have sacrificed so much for this country.”

“Realtors support efforts to boost veteran participation in this program, but we also believe VA loan guarantee fees should be based on the risk of the loan made, not the costs of other VA programs or benefits,” Smaby added later in the letter.



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