Big changes for the VA Home Loan program

By Sari R. Updated on 8/17/2012

President Obama signed a bill last week, the “Honoring America’s Veterans and Caring for Camp Lejeune Families Act” that will provide some modifications to the VA home loan program.  This new bill will benefit disabled service members, single-parent soldiers and military widows.

 While this act primarily focuses on extending health benefits to those who lived at Camp Lejeune (a Marine Corps base that had contaminated drinking water for over thirty years), it also has proposed some monumental changes for the VA home loan program.  Since World War II, The VA home loan program has helped over 18 million veterans receive government-backed mortgages.  

This new act will help:

Disabled veterans

For every VA refinance loan it backs, the VA applies a fee to the purchase that is typically financed into the loan.  The VA Funding Fee makes sure that the VA home loan program will be free for future generations.  Borrowers with service-related disabilities have always been exempt from this fee.

Because of how slow the VA’s medical system has been moving in recent years, service members often have to wait months to get the official “disability rating” after their pre-discharge exams.  Thus, they have to pay the funding fee when they shouldn’t have to.  Now, as a thanks to Obama’s bill, the VA will be required to waive the fee after the pre-disability exam indicates the individual is disabled, instead of waiting months for the official “disability rating.”

Surviving military spouses

Before Obama signed this bill, the only way military widows could participate in the no-down-payment program is if their spouse had a service-related disability or died in the line of duty.  Now, as a result of this bill, VA home loans are being extended to the widows of veterans who had a service-related disability for at least ten years before their death.

Single parents and military couples

When applying for a VA home loan, you have to sign a piece of paper saying that the property will be your primary residence and you will be the primary occupant.  Military spouses can take the place of military members serving abroad when signing this paper, but this doesn’t necessarily help single-parent soldiers and married military couples.  As a result of this bill, dependent children will be able to meet the occupancy requirement.  Active service members who don’t have children, unfortunately, will still be unable to meet the occupancy requirements.   

Veterans living in high-cost counties

Veterans who live in the most expensive areas of the nation were hit hard last fall when loan limits for government-backed mortgages dropped to $625,000 from $729,000.  As a result of this bill, higher county loan limits will be reinstated sometime in 2014. 

Veterans who want alternative loan terms

Adjustable-rate mortgages were scheduled to be cut out of the VA loan program by the end of 2012, but as a result of this new bill, ARMs (including Hybrid ARMS) will be factored back into the VA home loan program.