An Important Change to the VA Loans Program

In October of 2010, the Department of Veterans Affairs announced an important change to the VA home loan guaranty program. Your VA loan benefits get many updates and alterations thanks to changes in U.S. legislation, new or expiring programs, even alterations based on national financial issues, natural disasters or other situations.

When President Obama signed the Veterans' Benefit Act of 2010 into law, he allowed an important change to the VA home loans program-- a change that benefits veterans receiving compensation for service-connected disabilities.

Before the Veterans Benefit Act of 2010, any veteran who qualified for disability compensation from the VA was also qualified as exempt from the VA loan funding fee. With the new law, that compensation has been extended to a new group of vets--those who have gone back into active military service and draw military pay instead of retirement or disability compensation.

The exemption from paying a VA funding fee is a substantial savings--VA loan funding fees are listed at 2.15% of the loan value for no-down payment VA mortgages. Any veteran exempt from having to pay the VA loan funding fee gets big savings they can use elsewhere or to get ahead on the VA mortgage.

Thanks to the Veterans Benefits Act of 2010, that exemption from paying the VA loan funding fee now applies to retired or separated veterans drawing or eligible for disability pay, and “individuals who were in receipt of compensation, but, either because they reenlisted or were recalled to active duty, are receiving active duty pay in lieu of compensation."

In recent years, this situation is more common than you might think--the military routinely makes offers to vets to come back on active duty in order to improve wartime readiness and increase manpower. Vets who were getting VA disability or retirement pay instead of disability pay had no problem qualifying for the VA loan funding fee exemption; but those who qualified under the old rules but came back to active duty were left out in the cold--no rule specifically addressing their situation existed to allow an exemption. Thanks to the Veterans Benefit Act of 2010, that loophole is closed and eligible vets have specific language addressing their situation in the VA loan rulebook.

This eligibility is effective immediately--any veteran who qualifies can apply for the funding fee exception as part of a new VA home loans application. At the time of this writing, no information was available about those who applied for VA home loans earlier in 2010, but we will run an update if one becomes available.