|
Veterans Administration Loan Program
More than 29 million veterans and service personnel are eligible
for VA financing. VA loans are especially helpful to first time home buyers. VA loans are one of the few mortgage loan programs
that does not require a down payment and also allows the seller to pay the buyer's closing costs. The Veterans Administration does not actually lend money to the home buyer.
Instead, the Veteran Administration guarantees the repayment of a portion of mortgage loan made by a mortgage lender
that has been underwriten according to VA loan guidelines. Zero down VA loans have an important role in New Jersey mortgage finance, New York
mortgage finance and Pennsylvania mortgage finance.
Currently, the Veterans Administration will
provide a guarantee up to $60,000 on VA guaranteed loans. Mortgage lenders will lend up to four times the amount of
the VA guarantee or $240,000. If the home buyer makes a downpayment, the lenders may increase the loan amount up to
four times the amount of the guarantee plus the amount of the down payment.
The VA mortgage loan resembles a traditional 30 year fixed rate loan in that the note rate is typically fixed
for the 30 year life of the loan. The amortization period is likewise, 30 years.
VA home loans have some significant advantages that should be should be considered by home buyers when
evaluating a new mortgage to finance a home purchase or refinancing:
- No down payment is required and the seller is permitted to pay buyer closing costs.
- Loan maximum may be up to 100 percent loan to value generally up to $240,000.
- Flexibility of negotiating interest rates with the lender.
- No monthly mortgage insurance premium to pay.
- Limitation on buyer's closing costs.
- VA loans are assumable mortgages (subject to credit approval of the VA).
- Right to prepay loan without a prepayment penalty.
- VA financial counseling during temporary financial difficulties.
VA loans have a reputation for be time consuming and difficult to close. However,
the Veterans Administration has recently taken significant steps to streamline the approval process which have eliminated
most of the bottlenecks. The bottom-line for home buyers is that VA loans are a very attractive home mortgage alternative. As long
as the veteran selects a competent lender that is experienced in making VA loans, there should be no difference
between closing a VA loan compared to any other conventional mortgage loan alternative.
- To buy a home, including townhouse or condominium unit in a
VA-approved project.
- To build a home.
- To simultaneously purchase and improve a home.
- To make home improvements of up to $6,000 relating to the energy-efficiency of a home.
- To refinance an existing home loan up to 90 percent of the
VA-established reasonable value or to refinance an existing VA
loan to reduce the interest rate.
- To buy a manufactured home and/or lot.
Veterans with active duty service, that was not dishonorable,
during World War II and later periods are eligible for VA loan
benefits. World War II (September 16, 1940 to July 25, 1947), Korean
conflict (June 27, 1950 to January 31, 1955), and Vietnam era (August
5, 1964 to May 7, 1975) Veterans must have at least 90 days' service.
Veterans with service only during peacetime periods and active
duty military personnel must have had more than 180 days' active
service. Veterans of enlisted service which began after September
7, 1980, or officers with service beginning after October 16,1981,
must in most cases have served at least 2 years.
Persian Gulf Veterans. Reservists and National Guard members who were activated
on or after August 2, 1990, served at least 90 days and were discharged
honorably are eligible. VA regional office personnel may assist
with eligibility questions.
Selected Reserve. Members of the Selected Reserve, including National Guard, who
are not otherwise eligible and who have completed 6 years of service
and have been honorably discharged or have completed 6 years of
service and are still serving may be eligible. The expanded eligibility
for Reserves and National Guard individuals will expire October
28, 1999. Contact the local VA office to find out what is needed
to establish eligibility.
Remaining Entitlement. Veterans who had a VA loan before may still have "remaining entitlement" to
use for another VA loan. The maximum entitlement available
to each eligible veteran is $60,000. This was much lower in years
past and has been increased 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 that loan is not paid off, the veteran could use the $47,500
difference between the $12,500 entitlement originally used and
the current maximum of $60,000 to buy another home with VA financing.
Most lenders require that a combination of the guaranty entitlement
and any cash down payment must equal at least 25 percent of the
reasonable value or sales price of the property, whichever is less.
Thus, in the example, the veteran's $47,500 remaining entitlement
would probably meet a lender's minimum guaranty requirement for
a no down payment loan to buy a property valued at and selling
for $190,000. The veteran could also combine a down payment with
the remaining entitlement for a larger loan amount.
Restoring Entitlement. Veterans can have previously-used entitlement "restored" to purchase
another home with a VA loan if:
- The property purchased with the prior VA loan has been sold
and the loan paid in full, or
- A qualified veteran-transferee (buyer) agrees to assume the
VA loan and substitute his or her entitlement for the same amount
of entitlement originally used by the veteran seller.
- Entitlement may also be restored one time only if the veteran has repaid
the prior VA loan in full but has not disposed of the property
purchased with the prior VA loan. Remaining entitlement and restoration
of entitlement can be requested through the nearest VA office
by completing VA Form 26-1880.
The application process for VA financing is no different from
any other type of loan. In fact, the VA application form is the
same as that used for HUD/FHA and Conventional loans. The mortgage
lender verifies the applicant's income and assets, and obtains
a credit report to see that other obligations are being paid on
time. If all is well and the appraised value of the property is
enough to cover the loan needed, the lender, in most instances,
can then close the loan under VA's automatic procedure. Only about
5 percent of VA loan applications have to be submitted to a VA
office for approval before closing.
Requirements For Loan Approval. To obtain a VA loan, the law requires that:
- The applicant must be an eligible veteran who
has available entitlement.
- The loan must be for an eligible purpose.
- The veteran must occupy or intend to occupy the property as
a home within a reasonable period of time after closing the loan.
- The veteran must be a satisfactory credit risk.
- The income of the veteran and spouse, if any, must be shown
to be stable and sufficient to meet the mortgage payments, cover
the costs of owning a home, take care of other obligations and
expenses, and have enough left over for family support.
Select Get Pre-Approved from above to find out
if you qualify for a VA loan.
VA Apprisal - Certificate of Reasonable Value. After the purchase
contract has been signed, the lender will normally order an appraisal through the VA. The VA appraisal is called
CRV (Certificate of Reasonable Value) and is based on an appraiser's
estimate of the value of the property to be purchased. The loan amount may not exceed the value indicated in the CRV.
To simplify things,
VA and HUD/FHA (Department of Housing and Urban Development/Federal
Housing Administration) use the same appraisal forms. If
the property was recently appraised under the HUD procedure, under
certain limited circumstances, the HUD conditional commitment can
be converted to a VA CRV.
For most loans for new houses, construction is inspected at
appropriate stages to ensure compliance with the approved plans,
and a 1-year warranty is required from the builder that the house
is built in conformity with the approved plans and specifications.
In those cases where the builder provides an acceptable 10-year
warranty plan, only a final inspection may be required.
It is important to recognize that while the VA appraisal estimates
the value of the property, it is not an inspection and does not
guarantee that the house is free of defects. Homebuyers should
be encouraged to carefully inspect the property themselves, or
to hire a reputable inspection firm to help in this area. VA guarantees
the loan, not the condition of the property.
Funding Fee. The Veteran's Administration charges a one time at closing
for issuing a VA loan guarantee. The funding fee may be paid in cash at closing or it may be included in the
loan. The amount of the fee is determined according to the following guidelines:
- A basic funding fee of 2.00 percent must be paid to VA by all
but certain exempt veterans. A down payment of 5 percent or more
will reduce the fee to 1.50 percent and a 10 percent down payment
will reduce it to 1.25 percent.
- A funding fee of 2.75 percent must be paid by all eligible
Reserve/National Guard individuals. A down payment of 5 percent
or more will reduce the fee to 2.25 percent and a 10 percent
down payment will reduce it to 2.00 percent.
- The funding fee for loans to refinance an existing VA home
loan with a new VA home loan to lower the existing interest rate
is 0.5 percent.
- Veterans who are using entitlement for a second of subsequent
time who do not make a downpayment of at least 5 percent are
charged a funding fee of 3 percent.
Other Closing Costs. Reasonable closing costs may be charged by the lender. These costs
may not be included in the loan. The following items may be paid
by the veteran purchaser, the seller, or shared. Closing costs
may vary among lenders and also throughout the nation because of
differing local laws and customs.
- VA Appraisal
- Credit Report
- Loan Origination Fee (usually 1 percent of the loan)
- Discount Points
- Title Search and Title Insurance
- Recording Fees
- State and/or Local Transfer Taxes, if applicable
- Survey
No commissions, brokerage fees or "buyer broker" fees may be charged
to the veteran buyer.
|
|