As the wife of a Marine, the granddaughter of a Navy Officer and friend to many Active Duty and Retired Military, I wanted to take this week to say thank you to all of our Veterans and share some good news! Starting in January 2020, the VA loan benefits are going to change for the better. I spoke to David Piatek, Vice President at The Federal Savings Bank and National Guardsman about what is on the horizon. He shared: (1) what mortgage benefits are available to Veterans now, (2) what we can expect to change in 2020, and (3) what Veterans should consider when applying for a VA loan.
JT: What are the current VA loan benefits afforded to Veterans?
DP: Currently Veterans can purchase a home with no money down and no private mortgage insurance required. In our area there is a cap on the loan amount of $726,525. You can have as many active VA loans as you want with no money down until you reach the cap. If you want to purchase a home for above the cap, you will need to put down 25% of the difference. There is a VA funding fee that can be rolled into the mortgage payments. It is 2.15% for Active Duty (or Veterans from Active Duty) for your first VA loan. It is 3.3% if you have had a VA loan in the past and put no money down on the new purchase. Closing costs cannot be rolled into the mortgage. Those have to be paid out of pocket unless the buyer negotiates for the seller to pay them.
JT: How will the VA loan benefits be changing in 2020?
DP: There will no longer be a cap on the loan amount as long as you don’t have a current VA loan. If you want to purchase multiple homes using the benefit, the pre-2020 cap applies. For example, if you are a qualifying Veteran who wants to purchase a $1.5M home, you can do so with no down payment as long as you don’t already have an existing VA loan on another property or properties. If you already have an active VA loan and would like to purchase a home with the 2020 benefit, you can refinance your existing VA loan into a conventional loan (to free up benefits). The VA funding fee will change to 2.3% for your first loan (from 2.15%), and 3.6% (from 3.3%) if you have had a VA loan in the past. You can still roll the funding fee into the mortgage. And, Purple Heart recipients pay no VA funding fee. The rules on closing costs will remain the same.
In this market – where many of the homes are valued above the current VA cap – this is a fantastic opportunity for those service members who can afford a home priced above the cap limit but haven’t saved up enough money for the down payment.
JT: With so many loan options available to homebuyers, does it make sense for a Veteran to take advantage of these benefits if they have a down payment saved up?
DP: It depends on what you plan to do with that down payment. If you have an investment vehicle that will earn more money for you than you will be spending on the mortgage interest and fees, it definitely makes sense to pursue a VA loan. Also, keep in mind that as a general rule, $100k of loan equals about $500 of monthly loan payment. If you would rather have that $100k in your bank account, it might make sense. Everyone’s financial situation is unique, so talk to a financial advisor and/or your lender to determine what makes the best financial sense for you.
JT: Is there anything else that Veterans should consider when determining whether or not to pursue a VA loan?
DP: Although the cap is gone, you still have to qualify for whatever loan amount you are seeking. The VA loan has a higher debt to income ratio requirement than a conventional loan to qualify, but looser credit standards. In general, a credit score of 680 or higher gets you the best rate for VA loans, while your score would need to be 740 or higher to get the best rate with a conventional loan. Also, while the VA loan sounds like an amazing deal, be very careful when choosing a lender. There are often fees and points that are built-in on the back end that you might not be aware of. Make sure that you know exactly how much you are paying to get the benefit.
David Piatek has been in the mortgage business for over 14 years. After finishing high school and college early, he started his own mortgage brokerage at the age of 18 – the youngest mortgage broker in Illinois. The grandson of a Resistance fighter in WWII-Poland, he had always dreamed of joining the military to help keep our country safe. Almost 11 years ago he achieved that dream when he joined the National Guard, where he remains an active member to this day. He is passionate about helping Veterans and all home buyers achieve their dreams of homeownership.
TTR Sotheby’s International Realty is regarded as one of the highest-performing real estate firms in the United States. With nine offices and over 450 sales associates across Washington, D.C., Maryland, and Virginia, our commitment to professional service, integrity, and community leadership allowed us to capture more than $3.17 Billion in closed sales in 2018, while also serving as one of Washington D.C.’s foremost leaders in corporate philanthropy.
TTR Sotheby’s International Realty
2300 Clarendon Blvd., Suite 200
Arlington, Virginia 22201