VA Loan Facts
What are the benefits of a VA home loan?
VA loans differ from traditional loan products in that they are backed by a 25% guarantee from the Federal government. This means that if the borrower goes into default then the Federal government will step in and guarantee 25 percent of the amount of the loan to the investor who purchased the VA loan.
Moreover, VA loans are designed to help borrowers with little or no money to put down on a home. Accordingly, VA loans offer some of the highest loan-to-value ratio in the industry.
Some of the additional benefits are as follows:
- Equal opportunity.
- No down payment (unless it is required by the lender or the purchase price is more than the reasonable value of the property).
- Buyer informed of reasonable value.
- Negotiable interest rate.
- Ability to finance the VA funding fee (plus reduced funding fees with a down payment of at least 5% and an exemption for veterans receiving VA compensation).
- Closing costs are comparable with other financing types (and may be lower).
- No recurring mortgage insurance premiums.
- An assumable mortgage.
- Right to prepay without penalty.
- For houses inspected by VA during construction, a warranty from builder and assistance from VA to obtain cooperation of builder.
- VA assistance to veteran borrowers in default due to temporary financial difficulty.
I already obtained one VA loan. Can I get another one?
Many first time borrowers do not realize that once they have a VA loan they are eligible to purchase another home with a VA loan. Just because you have a prior VA loan, it does not necessarily mean that you are unable to purchase a second house using a VA loan.
There are certain circumstances where a person with a prior VA loan can qualify for a second VA loan. There are certain criteria in doing this, but it is indeed possible. One situation in which a military individual may qualify for a second VA loan is when they have paid off their prior VA loan and disposed of the property that was bought with a prior VA loan. This will allow the borrower to apply for an additional VA loan with no problems.
Prior VA loan holders may also get a second VA loan if they have paid off their current home that was purchased with a VA loan and still own the property.
If a person has a prior VA loan they can restore their eligibility for a second VA loan by having another Veteran assume their loan. This means that if the person purchasing your home is also a veteran and chooses to assume your loan, you will be able to restore your eligibility and apply for another VA loan.
What is the VA Funding Fee?
The VA funding fee is required by law. The fee is intended to allow the veteran who obtains a VA home loan to contribute toward the cost of this benefit. Thereby reducing the cost to taxpayers. The funding fee for second time users who do not make a down payment is slightly higher. The table shown below gives an outline of the fee amounts based on type of military service, LTV ratio, and number of times used.
- Purchase And Construction Loans
- Note: The funding fee for regular military first time use from 1/1/04 to 9/30/04 is 2.2 percent. This figure drops to 2.15 percent on 10/1/04.
|Type of Veteran||Down Payment||First Time Use||Subsequent Use for loans from 1/1/04 to 9/30/2011|
|Regular Military||None 5% or more (up to 10%) 10% or more||2.15% 1.50% 1.25%||3.3% * 1.50% 1.25%|
|Reserves/ National Guard||None 5% or more (up to 10%) 10% or more||2.4% 1.75% 1.5%||3.3% * 1.75% 1.5%|
Cash-Out Refinancing Loans
|Type of Veteran||Percentage for First Time Use||Percentage for Subsequent Use|
|Regular Military||2.15%||3.3% *|
|Reserves/National Guard||2.4%||3.3% *|
* The higher subsequent use fee does not apply to these kinds of loans if the veteran’s only prior use of entitlement was for a manufactured home loan.
Other Types Of Loans
|Type of Loan||Percentage for Either Type of Veteran Whether First Time or Subsequent Use|
|Interest Rate Reduction Refinancing Loans||.50%|
|Manufactured Home Loans||1.00%|
I want to purchase a house with a VA loan. Do I need to occupy the property?
The law requires that you certify that you intend to occupy the property as your home. This requirement is considered satisfied if you do 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.
What are the Minimum Property Requirements?
The basic minimum property requirements for VA homes encompass many different features of the home. The home must meet the VA space requirements. The space must be suitable for living, cooking and dining, sleeping, and contain sanitary facilities. The home must meet the VA mechanical systems requirements. The mechanical systems must be safe to operate, be protected from destructive components, have future utility, durability, and economy, and have enough capacity and quality. There are also basic demands regarding heating, water supply and sanitation, roof covering, crawl space, ventilation, and electricity. The heating must be reliable for healthy living conditions. The water supply must provide hot water and safe drinking water. The sanitation facilities must be sanitary and have a safe process of sewage disposal. The roof must prevent any leaks and provide reasonable durability.
The crawl space must be accessible, clear of debris, and vented. The ventilation must be natural ventilation into the crawl space and attic. Electricity must be provided. Other demands for the property include a lack of hazards and defective conditions and the presence of legal and reliable access to the property. The property needs to be free of hazards that may affect a person's health, the structure, and the enjoyment of the home. The property must be free of defective conditions including defective construction, poor workmanship, evidence of continuing settlement, excessive dampness, leakage, decay, and termites. Meeting these requirements will establish the safety and provide the home with the assembled standards.
There are variations and exemptions to the VA property requirements. The variations include modifications made by the VA due to certain conditions common to a location where fulfillment of the requirements are impractical or impossible. The exemptions can be approved when a military veteran is under contract to buy the property, the VA and the lender both ask for the exemption in writing, and the property still meets the basic safety, structural, and sanitation demands.
Once the VA property requirements are met, the VA streamline loan will become attainable. Visit ExpressVaLoan.com for help with the property requirement process as well as the variations and exemptions.
Can I refinance my VA loan if I do have a second mortgage?
Yes. However, the VA will require that it maintain a 1st lien position on title. This means that you will need to ask your second lien holder to re-subordinate their interest in the property. So this means that they agree to maintain a second lien position to the VA loan.
It is important to note that in today’s economic climate, some second lien holders are reluctant to do this due to many factors such as the state of your local real estate market and your property’s combined LTV ratio.
Most second lien holders charge a processing fee a re-subordination. This fee is usually ranges between $100 to $250 and is typically non-refundable whether the subordination is ultimately approved or not.
What does the VA “Guarantee” mean?
VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a house which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fail to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to secure favorable financing terms. This guarantee is typically 25% of the loan amount.
What is pre-purchase counseling and why is it helpful?
A: Pre-purchase counseling gives a person information on (1) the process of buying a home, (2) the key players in the home buying process, and (3) debt management. The goal is to create a more well informed home buyer. While VA does not require such counseling, we strongly recommend it. There is usually no charge for the housing counseling.
An excellent online source of information for first time home buyers is provided by Ginnie Mae.
To locate a housing counseling office call (800) 569-4287. or visit HUDs website.
Does my entitlement guarantee that I will get a home loan?
No, VA cannot compel a lender to make a loan that would violate their lender policies. Lenders must comply with VA income and credit standards. If a lender is unwilling to make a loan to you, we can only suggest that you try other lenders.
How much is my entitlement?
Your basic entitlement is $36,000. For loans in excess of $144,000 to purchase or construct a home, additional entitlement up to an amount equal to 25 percent of the Freddie Mac conforming loan limit for a single family home may be available. This loan limit can change yearly. The conforming loan limit for 2008 is $417,000 ($625,500 for Hawaii, Alaska, Guam and U.S. Virgin Islands). This means that qualified veterans could get a no down payment purchase loan for those amounts.
There is a specific entitlement amount located on the document known as the Certificate od Eligibility (COE). The maximum amount that is allowed to be on the COE for a VA entitlement is $36,000. VA borrowers need to pay close attention to the amount of entitlement, as well as the rules and regulations of the entitlement. A borrower may use up to an amount of $60,000 of entitlement for a loan consisting of $144,000 or greater. You must also understand that the COE will not ever show that the extra $24,000 has been used. There will be a place on the COE form that will note the available entitlement amount.
Keep in mind that the entitlement is only for the specific loan you have acquired. If someone takes over this loan, the entitlement will also be transferred with the loan, and will not expire until this loan is paid in full. If the form shows that the maximum entitlement amount is still in effect on the date the assumption is effective, borrowers will not have to have the COE updated. Lenders will understand that the borrower now has the max available of $36,000
Veterans are allowed to use their entitlement a second time. If a veteran has paid off their previous loan and sold the property, then they are eligible to restore their entitlement for use once again. There is also a one-time opportunity to have your entitlement restored if you pay off your loan in full, but are still in possession of the property
There is a process and special documentation that must be completed in order to have your entitlement restored. The reuse of your entitlement is very common and a firm understanding this opportunity will give you a better chance of using this option in the future.
What can VA not do?
Guarantee that a home is free of defects. VA guarantees just the loan. It is your responsibility to assure that you are satisfied with the property being purchased. The VA appraisal is not intended to be an "inspection" of the property. You should seek expert advice (a qualified residential inspection service), as necessary, BEFORE legally committing to a purchase agreement.
If you have a home built, VA cannot compel the builder to fix any construction defects, although VA does have the authority to suspend a builder from further participation in the home loan program.
VA cannot guarantee that you are making a good investment. VA cannot provide you with legal services.
Is a guaranteed loan a gift?
No, it must be repaid, just as you must repay money you borrow. If you fail to make the payments you agreed to make, you may lose your home through foreclosure.
Can I get a loan for a home outside of the United States?
Unfortunately, the law only allows VA to guarantee loans on property in the United States, its territories, or possessions.
Can I get a VA loan if I have had a bankruptcy in the last few years?
The fact that you and/or your spouse have been adjudicated bankrupt does not itself disqualify you for a VA home loan. The following rules apply:
- If the bankruptcy was discharged more than 24 months ago, it may be disregarded
- If the bankruptcy was discharged within the last 1 to 2 years, it is most likely not possible to determine that you and/or your spouse are a satisfactory credit risk unless both of the following requirements are met:
You and/or your spouse have reestablished good credit, and
The bankruptcy was caused by circumstances beyond your and/or your spouses control (such as unemployment, medical bills, etc.)
- If the bankruptcy was discharged within the past 12 months, it will not generally be possible to determine that you and/or your spouse are safe credit risks.
Why do I have to pay a fee for a VA home loan? Since I paid a fee for my first loan, why is there a larger fee for my second loan?
The idea of a higher fee for second time use is based upon the fact that these veterans have already had a chance to use the benefit once, and also that prior users have had time to accumulate equity or save money towards a down payment.
Second time users who make a down payment of at least 5%, pay a reduced funding fee of 1.5 percent, the same as first time users making the same down payment. For a 10 percent down payment, the fee drops to 1.25 percent.
The effect of the funding fee on a veteran's financial situation is minimized since the fee will be financed in the loan.
National Guard and Reservist veterans may pay a slightly higher funding percentage. To determine the exact funding fee percentage, please review the funding fee table below.
May a veteran join with a non veteran who is not his or her spouse in getting a VA loan?
Yes, but the guaranty is based only on the veteran's portion of the loan. The guaranty cannot cover the non-veteran's part of the loan. Consult lenders to determine whether they would be willing to take applications for joint loans of this type. Lenders that are willing to make these types of loans will most likely require some sort of down payment to cover risk on the un-guaranteed, non veteran's portion of the loan. Unlike other loans, the lender must submit joint loans to VA for approval before they are made.
Both incomes can be used to qualify for the loan. However, the veteran's income must be sufficient to repay at least that portion of the loan related to the veteran's interest in (portion of) the property and the non-veteran's income must be adequate to cover the rest of the loan.
If a veteran dies before the loan is paid off, will the VA guaranty pay off the balance of the loan?
A: No. The surviving spouse or other co-borrower must continue to make all of the payments. If there is no CO-borrower, the loan becomes the obligation of the veteran's estate. Mortgage life insurance is available but has to be obtained from private insurance sources.
What are the closing costs on a VA loan?
VA Streamline loan closing costs are regulated by the VA. If you are buying a house and have qualified for a VA loan it is important that you understand the guidelines of VA closing costs. These guidelines differ than that of a conventional home loan.
The VA wants Veterans to save money and have the opportunity to afford a nice home at an affordable price. Qualified Military Personnel can roll their VA closing costs into their VA loan, which will help them to take full benefit of the no down payment option.
The borrower may be required to pay a reasonable appraisal fee to an approved VA Appraiser. The Veteran may choose the appraiser from an approved list of appraisers and have the option to pay for a second appraisal if they disagree with the first appraisal. Recording fees are charged by the county they are in, but the amount that can be paid is regulated by the VA.
VA closing costs also include a credit report cost. The veteran has to pay this VA closing cost. The price for a credit report is reasonable, generally less than $100.
Other fees that may be part of the VA closing costs are hazard insurance, title examination and title insurance, title exam, survey, funding fee and any type of delivery and/or mailing services. These closing costs are mostly standard with a VA loan and the VA enforces its regulations to ensure that the borrower is charged a fair amount of closing costs.