The veterans benefits bill signed into law on Aug. 6 provides some much-needed updates to the VA home loan program that will benefit military widows, single-parent soldiers and service members with disabilities.
Much of the focus of this wide-ranging legislation falls on Camp Lejeune, a Marine Corps installation that exposed military and civilian personnel and their families to contaminated drinking water for three decades. The “Honoring America’s Veterans and Caring for Camp Lejeune Families Act” extends health-care benefits to those sickened at the sprawling North Carolina base.
But the measure also contains some landmark changes to the nearly 70-year-old VA loan guaranty program. It's tough to estimate how many veterans and military families may be affected. In Minnesota, where VA loan volume has jumped 25 percent since 2009, this bipartisan legislation is likely to resonate with thousands.
Here's a look at who stands to benefit:
Surviving military spouses
Military widows and widowers have had access to the no-down-payment program only if their spouse died in the line of duty or of a service-connected disability. The countless spouses of disabled veterans whose deaths weren't deemed service-connected have not been included. This bill closes that loophole and extends VA loan benefits to the spouses of veterans who simply had a permanent, service-connected disability for at least the last 10 years preceding death.
Veterans with disabilities
The VA applies a fee to every purchase and refinance loan it backs. The VA Funding Fee helps fund the program for future generations and ensures it's free of the congressional appropriations process. Borrowers with a service-connected disability are exempt from paying this fee, which is typically financed into the loan.
But in recent years the VA's slow-moving medical system has created unintended consequences for mortgage seekers. Many service members preparing to leave the military wind up waiting months for an official disability rating after getting a pre-discharge exam. Those who purchase a home in the interim are assessed the VA Funding Fee, essentially forcing some borrowers into larger mortgages than necessary.
Under this omnibus bill, the VA will now waive the fee whenever a pre-disability exam determines a service member is eligible to receive disability compensation.
Military couples and single parents
VA home buyers have to meet occupancy requirements tied to the program's commitment to helping veterans obtain primary housing rather than vacation homes or investment properties. Currently a spouse can fulfill that requirement for a military member serving abroad, which does little to help single-parent soldiers and some married military couples. A dependent child will be able to fulfill the occupancy requirement under this new legislation.
Military members on the move
Adjustable-rate mortgages are no longer the rage, but they can still make sense for active military members in some cases. The VA has backed ARMs off and on for about 20 years, depending on legislative prerogatives, and was set to lose its guaranty power at the close of 2012. This legislation makes adjustable-rate mortgages and hybrid ARMs permanent fixtures in the VA home loan program.
Chris Birk is a former journalist and the author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.” He is also content development director for Veterans United Home Loans.
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