2012 was a big year for changes to the VA loan program, mostly thanks to the passing of Public Law 112-154, or the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012. The Act brought several major changes to the VA loan program, one in regards to the occupancy requirement, where now a dependent child can fulfill the occupancy requirement on behalf of the veteran borrower, and another in regards to funding fee waivers, which now allows for medical records while on active duty to be used by the VA to verify what an active servicemember’s disability status will be upon discharge. Since an exemption to the funding fee is dependent on the servicemember’s disability status, the new verification methods allow for more veterans to be exempt from the funding fee.
But another big change has more to do with surviving spouses of veterans than the veterans themselves. A “surviving spouse” in the context of VA loans means specifically a spouse whose veteran partner passed away during service or due to a service-related disability. The Act changes VA policy in regards to surviving spouses in that it expands VA loan options for certain surviving spouses. Essentially, the change allows for surviving spouses of disabled veterans whose death was not directly caused by their disability to have VA loan benefit eligibility. From the VA Circular 26-12-9: “Public Law 112-154 expands home loan benefit eligibility to surviving spouses of certain totally-disabled Veterans. Now included as eligible are surviving spouses of certain Veterans who were continuously rated for a service-connected disability, but whose disability may not have been the cause of death.”
Now, this change does not apply to any spouse whose veteran partner was disabled. The veteran must fulfill one or more of four requirements in order for their spouse to be considered. This is only in the case that the veteran’s death was not caused by his or her service-related disability. The first option is if the veteran was either receiving (or would have been receiving if it hadn’t been for retirement pay) disability compensation for a service-connected disability rated totally disabling. This is a requirement because the change to expand VA loan benefits was made to assist surviving spouses who are likely struggling financially to keep their heads above water – if the veteran spouse had only a minor disability and wasn’t relying heavily on their disability compensation to make ends meet, the surviving spouse should, in theory, be better off upon the death of the veteran than the spouse of a totally disabled veteran.
The second option is that the veteran spouse had a rating of totally disabled for at least 10 years leading up to his or her death. This option, as well as the third option, exist to provide a degree of flexibility to help cover different situations with the same level of need. The third option is that the veteran was rated as totally disabled continuously for at least 5 years from their discharge date. Some disabilities become worse with time and a veteran won’t be considered totally disabled until the disability has become worse, while other disabilities heal and improve over time and a veteran might go from totally disabled to only partially disabled.
The last option is for a veteran who was a former prisoner of war and who died after September 30th, 1999, and was rated totally disabled for at least a year immediately leading up to his or her death. For all these cases, surviving spouses are exempt from paying the VA funding fee. Additionally, for a surviving spouse who is also VA-eligible, they are not limited to only one of the entitlement amounts, but can use both. From the VA Circular: “These newly eligible surviving spouses are not required to pay a funding fee. Additionally, a surviving spouse who is newly eligible under Section 202 of P.L. 112-154, and who also would be eligible for home loan guaranty benefits under his/her own entitlement, is not limited to only one of the various entitlements available.”
Any additional questions can be taken to a VA-approved lender or directly to the VA. Contact your VA Regional Loan Center or find an approved lender in your area to consult.