Tips & Special Topics
Veterans’ Benefits Improvement Act of 2008 Impacts VA Home Loans
Added November 24, 2008 | Updated November 26, 2008
Veterans, defined here as people or survivors of those who have served in our armed forces, like many Americans, may also be feeling today’s economic crunch. And, many homeowners fear the dreaded F-word – FORECLOSURE. But, now that new and better conditions have been established by the Veterans’ Benefits Improvement Act of 2008, relief may be in sight. The bill sponsored by Senator Daniel Akaka (D- HI), was created to improve and enhance Veterans’ benefits, including: compensation and pension, housing, labor and education, and insurance. This Act, signed by the president into law October 10, 2008, includes major impacts to the VA Home Loan Guaranty Program. Understanding these impacts can point Veterans in the right direction when looking to refinance VA loans and possibly stave off financial woes.
Originally set to expire this year, VA’s authority to guaranty Adjustable Rate Mortgages (ARMs) and Hybrid ARMs was extended under the new law through September 30, 2012. All VA program requirements related to ARMs and hybrid ARMs remain the same. It’s important to note, though, that unlike conventional ARMs and conventional hybrid ARMs, interest rates on VA guaranteed ARMs and VA guaranteed hybrid ARMs are limited from year to year, as well as over the life of the loans. This can represent a significant benefit to veterans.
The new law also enhances regular “cash out” refinancing loans. A “cash out” VA refinance is a mortgage refinancing transaction in which the new mortgage amount is greater than the existing mortgage amount; hence, the homeowner receives cash out of the equity. Under the old law, a cash out loan was limited to 90 percent of appraised value. Effective immediately, regular “cash out” VA refinance loans are available for up to 100 percent of the appraised value of the home.
The increase in the maximum loan guaranty amount for certain VA loans closed during the period of January 1, 2009 through December 31, 2011 allows the Department of Veterans Affairs to assist a substantial number of military personnel who currently have subprime mortgages (those mortgages obtained with less-than-ideal qualifications) to refinance into safer, more affordable, VA guaranteed loans. Veterans in financial distress with high rate subprime mortgages are potentially the greatest beneficiaries of this Act.
Though VA has never guaranteed subprime mortgages, VA can now help many more veterans who currently have subprime loans by guaranteeing VA refinance loans. As a result of the new law, Congress raised the VA’s maximum loan amount for these types of refinancing loans. The VA guaranty, previously capped to apply against a loan limit of $417,000, now will be available on loans of up to as much as $729,750 depending on where the home for which the VA loan obtained is located.
The new law is designed to help qualified veterans maintain adequate or suitable housing and protect veterans who may feel the threat of looming foreclosure by increasing the loan-to-value ratio and raising the maximum loan amount available under the VA Home Loan Guaranty Program. When combined with new locality-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.
In all, a VA home loan can provide a great benefit for veterans who qualify. First, VA home loans do not require private mortgage insurance (PMI); therefore, many veterans can and have saved hundreds of dollars each month. Second, VA home loans make sense because there is no down payment required. Third, qualifying for a VA home loan can be less stringent compared to other conventional loans. And, now with the new laws set forth by the Veterans Benefits Improvement Act of 2008, a VA home loan can be even more beneficial to veterans feeling squeezed financially.
Though guaranteed by the Department of Veterans Affairs, VA loans are funded and serviced by approved independent mortgage lending institutions which must ultimately agree to the terms of each loan.
By understanding all the benefits associated with this new law, veterans can open a “window of opportunity” and get some fresh air during this financial storm. Veterans ready to benefit from the new and improved VA home loan program can click any of the easy inquiry buttons on this website to get started. Apply or ask a question – it’s as simple as that. A VA home loan professional will follow up to help qualified veterans take advantage of these great VA refinance benefits.
