Hawaii VA Loans

With the new year, comes new VA loan limits. Unfortunately, to the surprise of many, the loan limits for 3 out of 4 Hawaii counties have gone down considerably.

• Honolulu County: 2010 VA Loan Limit =$700,000 (2009 Limits - $783,750)

• Hawaii County: 2010 VA Loan Limit = $625,500 (2009 Limits - $625,500)

• Kauai County: 2010 VA Loan Limit = $625,500 (2009 Limits - $775,000)

• Maui County: 2010 VA Loan Limit = $625,500 (2009 Limits - $681,250)

You would think that the the new loan limits are in direct correlation to the median sales prices in those particular counties, but we found a few anomalies that contradict this as referenced below:

According to City-Data.com, below are the median sales prices for a house or condo in 2008 (most recent numbers I could find):

• Honolulu: Median Sales Price = $606,800 , 2010 VA Loan Limit = $700,000

Now check out the relationship between median sales price and 2010 VA Loan limits for the following three counties:

• District of Columbia: Median Sales Price = $474,100 , 2010 VA Loan Limit = $768,750

• Fairfax, VA: Median Sales Price = $427,679 , 2010 VA Loan Limit = $768,750

• Pitkin, CO: Median Sales Price = $308,174 , 2010 VA Loan Limit = $1,094,625

Now keep in mind that these median sales prices are for 2008, but really, has the values in these counties gone up that considerably since (if at all)?

For those retired veterans, active duty officers or dual income families fortunate enough to afford a home beyond the limit, the VA provides a great Jumbo loan option. VA Jumbo financing is readily available for loan amounts up to $1 million with a small down payment. The down payment requirement is 25% of the difference between the purchase price and the maximum VA Loan amount at 100% financing (currently $783,750 for Oahu in 2009). So, here in Honolulu, a purchase price of $1 million, would require a down payment of just under $55,000. With a small seller credit and today’s amazingly low interest rates, you could purchase a million dollar dream home with little more than 5% to cover the down payment and closing costs.

No other program offers a Jumbo loan with that little down; and best of all, no private mortgage insurance (a monthly savings of almost $675 at that loan amount). For those fortunate enough to be able to take advantage of this program, this could be an opportune time to trade up on your existing equity.

2009 is sneaking upon us very quickly.  In the mortgage business that means new loan limits.  Hooray!  Traditionally, this means that the OFHEO (Office of Federal Housing Enterprise Oversight) releases their Housing Price Index data, which results in higher loan limits for FHA, VA and Conforming (Fannie Mae & Freddie Mac guaranteed) types of loans.  This year’s data doesn’t warrant an increase in the loan limits, but thanks to decisive action by our fearless leaders, we have new rules that expand the available loan amount limits by examining home prices at a more regional level.  For many counties across the contiguous United States, the loan limits will stay the same, but for High Priced Counties, the loan limits are now adjusted according to the cost of an average home in the county.  Here in Hawaii, each island has its own limit, but they all exceed the prior limit of $625,500 that had been in effect for the past two years.

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This is a tricky question and one that we, as VA Loan Specialists, have a hard time answering simply.  The best answer is, in fact, “it’s complicated”.  So, with that in mind, let’s take some time to see how the rules are applied.  Thankfully, the VA has recently posted clarifications and examples to make it easier on all of us.

The first thing that we need to understand is that the VA now adjusts the maximum loan amounts by county thanks to recent changes intending to support the ‘Jumbo’ loan market that lenders have shied away from in the past year.  Some counties may be at the national limit of $417,000 but if housing prices are higher than average, they may have a higher limit.  Here in Honolulu, the limit is currently $793,750 but will adjust downward to $721,050 at the beginning of the year.  Remember, that is the max for 100% financing, and that the VA program will actually allow for loan amounts greater than that as with a minimal down payment.

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One of the main reasons we started HawaiiVALoans.com was that we found that there were so many misconceptions about VA Loans.  Whether it was the broker/lender giving the wrong information or Veterans finding outdated information from non-reliable websites - it was evident that for whatever reason, the facts about VA Loans were getting distorted.

Over the years - we’ve heard it all.  I thought it would be a good idea to debunk the 5 most common myths we’ve heard about VA Loans:

1. “I can only use my VA Loan eligibility once”

This is by far the most common myth we hear - but this is definitely false.  There is no limit on the number of times you can use a VA Loan.  Now if you’ve had a VA loan previously, you need to have had your entitlement restored by paying off the mortgage (pay off balance, sell the property, refinancing into a conventional mortgage) in order to get another VA Loan.  There is a possibility  in which you could have more than one VA Loan outstanding at a time - but only if you didn’t use your entire entitlement on the purchase of the first property.  Now if you’ve already used a VA Loan previously, you just have to keep in mind that the cost of the VA funding fee is increased from 2.15% to 3.3% (no down payment) for every subsequent use of a VA Loan.  If you’ve accumulated equity on the sale of your first home, and you can put a 5% down payment the next time, your funding fee can be reduced from 3.3% to 1.5%.

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It’s official.  Included in the Housing and Economic Recovery Act of 2008 that President Bush signed, is  Section 2201 that calls for the “Temporary Increase in Maximum Loan Guaranty Amount for Certain Housing Loans Guaranteed by the Secretary of Veterans Affairs”.

In essence, from July 30th 2008 - January 1st 2009, the VA Department will increase their guaranty amount to cover 25% of the greater of the two:

1. $625,500 (for Hawaii, Alaska, Guam and Virgin Islands), or $417,000 (Continental 48 states).
2. 125 percent of the area median price for single-family residence, up to $1,094,625 (Hawaii, Alaska, Guam and Virgin Islands) or $729,750 (Continental 48 states).

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