New Rules for California VA Loans, Effective in 2020

There’s good news for California home buyers who plan to use the VA loan program to buy a house in 2020. A rule change issued by the Department of Veterans Affairs makes it easier for home buyers to purchase a higher-priced home, while still avoiding the down payment.

In the past, California VA loans have had certain limits associated with them. Those limits varied by county and were based on the ones used for conventional mortgage loans. If a borrower took out a VA loan that exceeded the county limit, he or she would’ve been required to put down 25% of the difference.

But all of that changed at the start of 2020, thanks to a new law that took effect in January. Going forward, the only size limits for VA loans in California will be the ones set by mortgage lenders. Qualified veterans can now borrow as much as they can afford without having to make a down payment.

New Rules for FHA Loans in California

In June of 2019, the Blue Water Navy Vietnam Veterans Act of 2019 was signed into law. It took effect on January 1, 2020.

Among other things, the law changed the old rules regarding VA loans, limits and down payments. It eliminated the old rule that said borrowers who use a VA loan that exceeds county limits have to make a down payment based on the difference.

Here’s a relevant quote from an FAQ document issued by the Department of Veterans Affairs:

On January 1, 2020, VA-guaranteed home loans will no longer be limited to the Federal Housing Finance Agency (FHFA) Conforming Loan Limits. Veterans will be able to obtain no-down payment home loans in all areas, regardless of loan amount.

Under the previous rules, VA loan borrowers who needed to borrow more than their county-specific loan limits had to put down 25% of the difference. That created an obstacle for many borrowers, especially those in higher-priced real estate markets like California.

Starting in 2020, however, those rules changed to favor home buyers in high-cost areas. Today, eligible borrowers can qualify for a VA loan up to $1 million (or even more) without having to make a down payment. And that’s a big deal, especially for home buyers in pricier real estate markets.

Bay Area Borrowers Stand to Gain

The new rules regarding VA loan limits will benefit many borrowers across the U.S., but especially those in higher-priced real estate markets like California.

As you know, home prices in the Golden State tend to be higher than they are in most other U.S. states. This is especially true for the San Francisco Bay Area, Silicon Valley, and coastal cities of Southern California.

Here’s a little math to show how significant this change is:

In 2020, the conforming loan limit for most of the Bay Area is $765,600. That used to be the limit for VA loans as well, for borrowers who wanted the zero-down-payment option.

Under the old rules, a VA loan user in the Bay Area who wanted to borrow more than $765,600 would’ve had to pay 25% of the difference or overage. (Example: If borrowing $900,000, the borrower would’ve had to make a down payment equaling 25% of the difference. That would’ve come to a down payment of $33,600.)

Under the new rules for VA home loans, that same borrower could potentially borrow the full amount without making a down payment.

As you can see, the revised rules regarding VA loans and limits will remove a significant hurdle for a lot of Bay Area borrowers. The same is true for many other California cities, as well.

A study conducted earlier this year determined which U.S. metro areas would benefit the most from the VA’s policy change (in terms of increased buying power). As you can imagine, several California metro areas topped that list. They were:

• Los Angeles-Long Beach-Anaheim
• San Jose-Sunnyvale-Santa Clara
• San Francisco-Oakland-Hayward
• San Diego-Carlsbad

The bottom line is that thousands of California home buyers could benefit from the removal of those VA loan limits. When you combine the state’s large military population with the relatively high cost of housing, you can understand why this us such a big deal.

Income and Repayment Ability Matter Most

The new rule for California VA loans will remove a hurdle for some borrowers, especially those with limited down-payment funds. But it doesn’t mean that everyone in the state can qualify for a million-dollar mortgage loan. You still need to have the ability to repay the loan.

Mortgage lenders have the ultimate say as to how much money they are willing to lend to a particular borrower. To determine this, they’ll consider the borrower’s current income, recurring debts, and similar factors. The goal is to ensure that the borrower has the means to repay the loan — which is in everyone’s best interest.

Related article: Closing costs for VA loans

Have Questions About the VA Loan Program?

At Bridgepoint Funding, we are passionate about the VA loan program because it supports our brave men and women in uniform. We specialize in making VA loans for borrowers in the Bay Area, and elsewhere across the state of California.

Please contact us if you have questions about the new VA loan rules for 2020, or if you’d like to get a quote for a home loan.