2025 Mortgage Outlook: How FHA and VA Programs Are Evolving

In 2025, both the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) are implementing significant policy changes and program adjustments that will affect millions of borrowers. From updated loan limits and eligibility rules to changing strategies for loss mitigation and home retention, the FHA and VA are signaling a strategic shift in how they support borrowers and regulate lenders.

Here’s a breakdown of what’s changing — and what it means for the mortgage industry this year.

FHA: Expanding Limits, Tightening Compliance

1. Loan Limit Increases

To keep pace with rising home prices, the FHA has raised its national loan limits:

• Standard limit: $524,225

• High-cost areas: Up to $1,209,750

• HECM (reverse mortgage) maximum claim amount: $1,209,750

This change increases purchasing power for FHA borrowers in competitive housing markets and reflects broader inflationary trends in real estate.

2. Rental Income Flexibility for Borrowers

As housing affordability remains a challenge, FHA has eased rules on using rental income to qualify:

• Acceptable documentation now includes bank statements, deposit receipts, and lease agreements.

• Only one year of rental income history is required (down from two).

• Rental income must be documented for at least 9 of the past 12 months.

• Capped at 30% of total qualifying income.

This change aims to support multigenerational households and buyers supplementing their mortgage with income from roommates or tenants.

3. Stricter Default and Loss Mitigation Policies

To strengthen servicer accountability and streamline home retention strategies:

• FHA has limited permanent loss mitigation options to once every 24 months.

• Mortgage servicers must now comply with revised procedures by October 1, 2025.

• The COVID-19 forbearance and modification programs are being phased out by September 30, 2025.

• Default engagement rules (how quickly lenders must act when borrowers fall behind) must be fully in place by July 1, 2025.

These changes reflect a move away from emergency measures toward a more structured servicing environment.

4. Exclusion of Non-Permanent Residents

A controversial rule change bans non-permanent residents, including DACA recipients and asylum seekers, from accessing FHA-backed loans starting May 25, 2025. This has sparked debate, as it significantly reduces eligibility for thousands of would-be first-time homebuyers.

VA: Scaling Up Lending While Winding Down Safety Nets

1. Surge in VA Loan Activity

VA loan usage is surging in 2025:

• Purchase loans have increased approximately 10% year-over-year.

• Refinance loans are up more than 150% compared to 2024, due to interest rate shifts and better borrower incentives.

2. Higher Loan Limits

VA-backed loans now support:

• $806,500 in most areas

• Up to $1,209,750 in high-cost counties

This keeps VA lending competitive even in expensive real estate markets and allows veterans to stay in their communities.

3. Agent Fee Policy Update

In a borrower-friendly move, the VA now allows veterans to directly pay real estate agent commissions. This gives more flexibility in negotiation — especially useful in tight housing markets where sellers are less

4. VASP Program Ends: Foreclosure Risks Rise

A major development this year is the termination of the VA Servicing Purchase (VASP) program, which helped tens of thousands of struggling veterans avoid foreclosure:

• VASP stopped accepting new cases on May 1, 2025.

• Active cases will wind down by August 31, 2025.

This has triggered concern as foreclosure risk rises—over 60,000 veterans are now considered at higher risk without this key safety net. Advocates are urging the VA to implement a new permanent loss mitigation solution similar to FHA’s partial claim program.

What These Changes Mean for 2025 Borrowers and Lenders

Both FHA and VA are adapting to a fast-evolving housing market. Here's what industry professionals and homebuyers need to watch:

TrendFHAVALoan LimitsIncreased across the boardIncreased to match conforming limitsRental Income PoliciesMore flexible qualification rulesNot applicableServicing/Loss MitigationTighter oversight, phased-out COVID programsVASP program ended; future unclearBorrower EligibilityNon-permanent residents now excludedExpanded rights to pay agent commissionsDemand ForecastSteady FHA usage expectedVA loan volume booming, especially in refis

Final Thoughts

The FHA is leaning into compliance and risk control, while still promoting access via higher limits and rental income flexibility. The VA, meanwhile, is expanding its lending footprint, but the end of VASP leaves a notable gap in borrower protection.

Whether you're a lender, servicer, or buyer, 2025 is a pivotal year. Staying informed and adaptive is key to navigating these changing programs.