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Veterans Bill Brings Some Big Changes to the VA Home Loan Program

A veterans omnibus bill now on its way to the president’s desk contains some key changes and updates that will extend housing benefits to more surviving spouses and allow military dependents to fulfill the loan program’s occupancy requirements.

The U.S. House passed the “Honoring America’s Veterans and Caring for Camp Lejeune Families Act” on Tuesday, nearly two weeks after a unanimous vote in the Senate. The bill is a legislative grab bag that provides a multitude of health, education and housing benefits for veterans and military families.

More than a half-dozen provisions directly impact the VA Loan Guaranty program, which allows qualified borrowers to purchase homes with no money down.

Surviving Spouses

Home loan benefits would extend to significantly more surviving spouses. Currently, only spouses of those killed in the line of duty or of a service-connected disability have VA loan entitlement. If this bill becomes law, as expected, eligibility will also extend to surviving spouses of veterans whose deaths were not service-connected, but who had permanent service-connected disabilities for at least a decade before their deaths.

Occupancy Requirements

Under this new measure, deployed service members and other VA homebuyers can have a dependent child live in a new home in order to satisfy the VA's occupancy requirements. Only a spouse can fulfill that requirement at present, which can put homeownership during deployment out of reach for single-parent veterans. This change would also allow married military couples to purchase homes while deployed.

VA Funding Fee

The VA Funding Fee is a mandatory charge applied by the Department of Veterans Affairs to each purchase and refinance loan. Borrowers with a service-connected disability and Purple Heart recipients are exempt from paying the fee. The problem is many veterans receive a pre-discharge VA disability exam and wind up waiting a long time for their disability rating to come down. During that period qualified borrowers who use their VA loan benefits are required to pay the funding fee, which is usually financed into the loan. This bill would waive the VA Funding Fee for all service members eligible to receive compensation because of a pre-discharge program.

VA Loan Limits

VA borrowers in high-cost counties are a step closer to regaining their lost purchasing power. The Bush administration in 2008 increased loan limits for government-backed mortgages to 125 percent of the local median home price. The higher limits -- as much as $729,750 in the nation's costliest corners -- fell back to $625,500 last fall after Congress balked at passing another one-year extension. The decline has handicapped some veterans in high-cost markets over the last 10 months, especially in places where home prices have avoided significant declines. This bill would reinstitute the higher VA loan limits in the nation's costliest counties through 2014.

Adjustable-Rate Mortgages

The VA was set to lose its ability to issue a financial guaranty for adjustable-rate mortgages (ARMs) and hybrid ARMs at the end of this year. This bill will make these permanent options within the agency's loan arsenal.

You can get a look at Congressional explanations of these and other provisions in this joint statement.