American VA Can Refinance Loans During Hard Economic Times

Ian C. Langtree - Writer/Editor for Disabled World (DW)
Published: 2009/02/24 - Updated: 2023/11/19
Publication Type: Informative
Topic: Disabled Veterans News - Publications List

Page Content: Synopsis - Introduction - Main

Synopsis: Relief may be in sight now Veterans Benefits Improvement Act of 2008 has established new and better VA loan conditions. Cash-out refinancing loans are also enhanced under the new law. Cash-out refinancing happens when a new home loan replaces an old mortgage of lesser amount resulting in "cash out" of the equity for the homeowner.

Introduction

Many Americans, including our veterans, may be feeling the effects of current economic tough times. And, many homeowners fear that if they don't get some relief fast, foreclosures may be in their future. Relief may be in sight now that the Veterans' Benefits Improvement Act of 2008 has established new and better VA loan conditions.

Main Item

The bill sponsored by Senator Daniel Akaka (D- HI) and signed by the president into law October 10, 2008, includes major impacts to the VA Home Loan Guaranty Program. Understanding these impacts can help VA-eligible borrowers who qualify refinance under the new VA loan benefits and possibly stave off financial dire straits.

The VA's authority to guaranty Adjustable Rate Mortgages (ARMs) and Hybrid ARMs was originally set to expire this year. Under the new law, this authority has been extended through September 30, 2012. Unchanged are the VA program requirements associated with ARMs and hybrid ARMs. Notably, unlike conventional ARMs and conventional hybrid ARMs, interest rates on VA guaranteed ARMs and VA guaranteed hybrid ARMs are limited year after year, and for the life of the loans. This can represent an important benefit to veterans.

Cash-out refinancing loans are also enhanced under the new law. Cash-out refinancing happens when a new home loan replaces an old mortgage of lesser amount resulting in "cash out" of the equity for the homeowner. Under the old law, a cash-out loan was limited to 90 percent of appraised property value. Now, cash-out VA refinance loans are available for up to 100 percent of the appraised property value.

VA loans closed during the period of January 1, 2009 through December 31, 2011 are subject to an increase in the maximum loan guaranty amount. As a result of the new law, the VA guaranty, previously capped at $417,000, now will be available on loans of up to $729,750 depending on the location of the home for which the VA loan is obtained.

The loan limit increase will allow Department of Veterans Affairs to help a higher number of military personnel who currently have subprime mortgages (obtained with less-than-ideal qualifications) to refinance into safer, more affordable loans under VA guaranty. Though VA has never guaranteed subprime mortgages, VA-eligible borrowers feeling financially squeezed due to high rate subprime mortgages are potentially the greatest beneficiaries of this Act.

Improvements made to the VA home loan guaranty program under the new law are designed to help qualified veterans maintain adequate or suitable housing and protect veterans who may feel they may lose their homes to foreclosure. Increasing the loan-to-value ratio and raising the maximum loan amount available under the VA Home Loan Guaranty Program can save many homeowners from this doom.

VA-eligible borrowers may find a VA home loan easier to get than other conventional loans. Not only do VA home loans require no private mortgage insurance, but, there is also no down payment required. Many find that qualifying for a VA home loan can be less stringent compared to conventional loans. And, now with the new law created by the Veterans Benefits Improvement Act of 2008, a VA home loan can be even more beneficial to veterans in financial distress. Understanding the benefits created as a result of this new law, veterans can weather the current financial storm.

NOTE: VA loans are originated and funded by private lending companies and guaranteed by the U.S. Department of Veterans Affairs. Lenders must ultimately agree to the terms of each loan.

Author Credentials: Ian was born and grew up in Australia. Since then, he has traveled and lived in numerous locations and currently resides in Montreal, Canada. Ian is the founder, a writer, and editor in chief for Disabled World. Ian believes in the Social Model of Disability, a belief developed by disabled people in the 1970s. The social model changes the focus away from people's impairments and towards removing barriers that disabled people face daily. To learn more about Ian's background, expertise, and achievements, check out his bio.