Section 7 _ VA MORTGAGES:
More than 29 million Veterans
and service personnel are eligible for VA financing. Although
many Veterans have already used their mortgage loan benefits,
it may be possible for them to buy homes again with VA financing
using remaining or restored (occurring after a VA loan is paid
in full) loan entitlements. Both the Veterans' Administration
and the Federal government guarantee VA mortgages.
Before arranging for a new mortgage to
finance a home purchase, Veterans should consider some of the
advantages of VA home loans. One of the most important features
is that there is no down payment required in most cases. Loan
amounts can be up to 100% of the VA-established reasonable value
of the property; however, because of the secondary market requirements,
loans generally do not exceed $240,000.00.
VA Loan Features:
No Monthly Mortgage Insurance
Premiums Required - The Veteran has the flexibility of
negotiating interest rates with the lender; there is no monthly
mortgage insurance premium to pay and there is a limitation on
the buyer's closing costs.
A Variety of Mortgage Types
Available - The VA mortgage is a 30-year program with
a choice of repayment plans. Although the most popular program
is the traditional 30-year fixed mortgage, a veteran can also
opt for a GPM (Graduated Payment Mortgage) or a GEM (Growing Equity
Mortgage). The GPM offers low initial payments which gradually
rise to a level payment starting in the sixth year while the GEM
gradually increases payments with all the increase applied to
principal, resulting in an early payoff of the loan. See GPM
Graduated Payment Balloon Mortgage.
To qualify for a VA mortgage upon building a
new home, periodic plan compliance inspections and a one-year
warranty to insure compliance to the approved plans and specifications
must be obtained. If the builder provides a 10-year warranty,
only a final inspection is required.
VA Mortgages are Conditionally
Assumable - (subject to assumer's credit) and have no
prepayment penalty. The VA also has loan counseling for Veterans
during temporary financial hardships to help them avoid loosing
their home.
VA Mortgages Have Great Flexibility
- A Veteran can use their eligibility to buy a home, including
a townhome or condominium in a VA-approved project; to build a
home; to simultaneously buy and improve a home; or to refinance
an existing home up to 90% of the VA-established reasonable value.
They can also refinance to reduce the interest rate on an existing
VA mortgage or to purchase a manufactured home and/or lot.
A Veteran can improve a home buy installing
energy-related features including solar heating/cooling systems,
water heaters, insulation, weather-stripping/caulking, storm windows/doors
or other energy- efficient improvements approved by the VA. These
improvements can be "added on" with the purchase of
an existing home or by refinancing a home owned and occupied by
the Veteran. A loan can be increased up to $3,000 based on documented
costs or up to $6,000 if the increase in the mortgage payment
is offset by the expected reduction in utility costs. A refinancing
loan may not exceed 90% of the appraised value plus the costs
of the improvements.
Funding Fee Concessions with
5% Downpayment - A basic funding fee of 2.0% must be paid
to VA by all but certain exempt Veterans. A down payment of 5%
or more will reduce the fee to 1.5% and a 10% down payment will
reduce the fee to 1.25%. A funding fee of 2.75% must be paid by
all eligible Reserve/National Guard personnel. A down payment
of 5% or more will reduce the fee to 2.25% and a 10% down payment
will reduce the fee to 2.0%. The funding fee for loans to refinance
an existing VA mortgage with a new VA loan to lower the existing
interest rate is .05%. Veterans who are using their entitlement
for a second or subsequent time and who do not make a down payment
of at least 5% are charged a funding fee of 3.0%.
All VA Home Loan Fees May
be Paid in Cash or Included in the Loan - In addition,
the reasonable closing costs that may be charged cannot be included
in the loan. The following items may be paid by the Veteran, the
seller or shared between them:
- VA Appraisal
- Credit Report
- Loan Origination Fee (usually 1% of the loan
amount)
- Discount Points
- Title Search and Insurance
- Recording Fees
- Transfer Taxes
- Survey Fees
No real estate commissions, brokerage fees or
"buyer broker" fees may be charged to the VA buyer.
Veterans' Entitlements Have Increased
- Veterans who had a VA loan before may still have "remaining
entitlements" to use for another VA loan. The current amount
of the entitlement available and delegated to each Veteran is
$36,000. This was much lower in years past and has been increasing
over time by changes in the law. For example, a Veteran who obtained
a $25,000 loan in 1974 would have used $12,500 guaranty entitlement,
the maximum then available. Even if the loan is not paid off,
the Veteran could use the $23,500 difference between the $12,500
entitlement originally used and the current maximum of $36,000
to buy another home with VA financing. An additional $14,750,
up to a maximum entitlement of $50,750 is available for loans
above $144,000 to purchase or construct a home.
There is No Limit on the
Size of a VA Guaranteed Home Loan, provided that the Veteran
is qualified for the loan from a credit and income standpoint.
However, as a practical matter, wholesale investors/agencies generally
limit the maximum loan amount to four times the amount of the
Veteran's available entitlement plus any down payment. Currently,
VA has increased no down payment loans to $240,000. To get a Certificate
of Eligibility the Veteran can complete VA Form 26-1880, "Request
for a Certificate of Eligibility for VA Loan Benefits" and
submit to one of the Veterans' Administration Eligibility Centers.
. We can assist you in securing your certificate.
VA Loan Facts:
- No down payment is required in most cases.
Loan maximum may be up to 100% of the VA-established reasonable
value of the property.
- No monthly mortgage insurance premium to
pay.
- There is a limitation to closing costs.
- You have the right to prepay loan without
penalty.
- It's an assumable mortgage, subject to VA
approval of the credit history of the one(s) who desire to assume
the mortgage from the Veteran.
Depending on the circumstances, you can have multiple VA loans.
If you have paid off your prior VA loan and disposed of the property,
you can have your entitlement restored for additional use. To
obtain restoration of entitlement, the Veteran must send the VA
a complete VA Form 26-1880, along with evidence that the property
has been disposed of and the loan repaid in full. This evidence
can be in the form of a pay-off statement from the former lender,
or a copy of the HUD-1 Settlement Statement completed in connection
with the sale of the property. The application can be presented
to any VA Regional Office. A Veteran can also obtain restoration
of entitlement, on a one-time basis, if the prior VA loan has
been paid in full but the property has not been sold.
VA credit standards state that a Veteran with
a bankruptcy less than 3 years ago would generally not be considered
a satisfactory credit risk unless the Veteran or their spouse
has obtained credit since the bankruptcy and has paid the obligations
in a satisfactory manner for a continued period. The bankruptcy
would also have had to been caused by circumstances beyond the
control of the borrower, which would have to be verified. A bankruptcy
discharged 3 to 5 years ago must be given some consideration in
the underwriting of the loan. A bankruptcy discharged more than
5 years ago may be disregarded.
These are the minimum standards that must be
followed when qualifying for a VA mortgage loan. In 95% of the
cases, decisions are made to approve a loan without VA's prior
approval. Keep in mind that lenders also have money at risk in
giving you a VA loan, so the credit standards may be more stringent
than those mandated by the VA.
The law requires that you certify that
you intend to occupy the property as your home. This requirement
is considered satisfied if you actually intend to occupy the property
as your home and in fact so occupy it when the loan is closed
or within a reasonable time afterward.
