Members of the military on active duty and veterans hoping to buy a home in expensive parts of the country have a lot to be thankful for this holiday season. Starting next year, they’ll be able to take out Veterans Affairs–backed mortgages as large as their bank accounts will allow. Thanks to the Blue Water Navy Veterans Act of 2019, veterans will be able to buy larger homes in pricier communities without having to put down a cent. However, they must still qualify for their mortgage and be able to afford the monthly payments. “It gives the veterans the opportunity to buy homes in the areas they want to be in,” says Austin, TX–based real estate agent Kyle Reed, of Pauly Presley Realty, himself a veteran who served in Iraq from 2001 to 2006. “It opens up some areas in cities to VA loans … that maybe veterans didn’t have access to before without putting a bunch of money down.”
Up until now, the size of a VA loan was capped at different amounts across the country. For example, borrowers could take out more in ultrapricey cities like San Francisco than in Detroit, where homes cost a whole lot less. As long as they stayed within those bounds, they could get a mortgage with a 0% down payment. But if they exceeded those limits, they had to put down 25% of the difference. The change goes into effect Jan. 1, 2020.
“There’s not a lot of VA buyers who are buying these very high-dollar homes, but there are some,” says mortgage lender Mike Villano of the Veterans Lending Group in Puyallup, WA, about 45 minutes south of Seattle. But “there’s a lot of places where these folks go and serve, and it’s very expensive.” The problem is that not all lenders are likely to be comfortable making huge loans without imposing a few restrictions of their own. The VA typically backs up to 25% of a VA loan. So banks, credit unions, and other loan makers are likely to set up some rules to protect against defaults.
Some may require higher credit scores or debt-to-income ratios to qualify for the loans. And some lenders may even impose their own caps on how much money borrowers can take out.
In addition, mortgage lenders pointed out that the limitless loans will apply only to a borrower’s primary home. That can be problematic for those on active duty, who might buy a home near their base, get stationed somewhere else, and then choose to buy a second home in that location while renting out the first. But if they already have a VA loan on another property, they can’t get the full perks of the loan on a second one. This means they may be on the hook for a down payment or can qualify for only a smaller loan for their new abode. “It would really help a lot of families if they could retain their current home and still be able to purchase at their new duty station with no cap,” says Villano.