The Blue Water Navy Veterans Act of 2019 brought about significant changes to the VA loan program that Orange County, CA Veterans should be aware of. The two biggest changes are the elimination of the 100% financing loan limit and the increase in VA Funding Fees.
Was there ever a VA Loan Limit in California?
There has always been confusion in regards to the VA loan limits. Technically, there was not a maximum VA loan amount prior to 2020. But there was a limit for No Down Payment VA loans. And since No Down payment is one of the best benefits of the VA loan, the 100% loan limit is something that Orange County Veterans have always needed to be aware of. In 2019 the 100% financing VA loan limit was $726,525.
An Orange County Veteran could buy a VA approved condo in Ladera Ranch for $726,525 and not need a down payment. But if that same Veteran was looking at a home in Newport Beach for $1,200,000, a down payment would be needed. The down payment was calculated using 25% of the difference between the purchase price and the loan limit of $726,525. In this case, 25% of the difference between $1,200,000 and $726,525 is $118,368. The VA loan would be $1,081,631. Now, in 2020, a Veteran buying an Orange County home above $726,525 will not need a down payment. So a Veteran buying a VA approved condo in Irvine for $1,000,000 will not need any down payment. And yes, there are VA approved condos in Irvine valued at over $1,000,000.
VA Funding Fee Changes for 2020
VA Funding Fees will be increasing in 2020. Below is a chart showing the previous Funding Fee's compared to the new Funding Fee's required on a VA home loan.
VA Loan Type | Down Payment | Funding Fee First Time Use | Funding Fee Subsequent Use |
|---|---|---|---|
Purchase | 0% | 2.3% | 3.6% |
Purchase | 5% to 9.99% | 1.65% | 1.65% |
Purchase | 10% or more | 1.4% | 1.4% |
Cashout Refinance | N/A | 2.3% | 3.6% |
VA Streamline (IRRRL) | N/A | .5% | .5% |
What is the VA Funding Fee?
The VA Funding Fee is required on all VA loans by law. There are some Veterans who have an exemption based on having a service connected disability rating through VA. The Funding Fee is used to help VA guaranty the VA loan program. The guaranty is the reason why the VA loan program is able to allow for 100% financing and not have a monthly mortgage insurance payment, like all other loan programs that allow financing above 80% of the property value. As shown in the chart above, the Funding Fee does go lower if the Veteran has either 5% or 10% for down payment. As part of the Blue Water Navy Veterans Act of 2019, Active Duty Military personnel who have received a Purple Heart will also be exempt from the Funding Fee.
Who Pays the VA Funding Fee?
The VA Funding Fee is paid by the Veteran, but is not an "out of pocket" expense. Depending on the Veterans preference, in most cases the Funding Fee is financed into the base VA loan amount. Below are the three ways the Funding Fee can be paid.
- Financed into the VA loan (this is the most common method)
- Paid out of pocket by the Veteran
- Paid by the seller of the home the Veteran is purchasing
If the Funding Fee is financed into the loan, the VA loan will be higher than the purchase price of the home. For example, if an Orange County Veteran buys a home is Laguna Niguel for $500,000 with a no down payment VA loan and this is their first time using the VA loan program, the Funding Fee will be 2.3%. To calculate the new loan amount, multiply 2.3% by $500,000 to get $11,500. Add $11,500 to $500,000 for a total VA loan of $511,500. The mortgage payment is based on the full loan amount of $511,500.
If you are interested in finding out what the numbers look like in your situation, contact a local Orange County VA loan specialist who will prepare a VA Total Cost Analysis. This will give you a clear and easy to understand break down of the numbers, helping you to make the right decision when it comes to your new homes financing.
Authored by Tim Storm, an Orange County, CA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at Fairway Independent Mortgage Corporation. My direct line is 714-478-3049. I will prepare custom VA loan scenarios that will be matched up to your financial goals, both long and short-term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process