What is a VA Guaranteed Home Loan?
A VA-guaranteed loan is a loan made by private lenders (such as banks, savings & loans, or mortgage companies) to eligible veterans. If you want to purchase a home, condominium or manufactured home, the VA can guarantee up to $417,000 of the total loan -- much higher than you can get with most conventional home loans. If you are considering refinancing an existing loan, VA offers you two options. You can either refinance to reduce your current interest rate or you can take equity out (cash-out). The "cash-out" option is limited to $144,000.
Better yet, there is no need to worry about financing a down payment (the portion of the home purchase price which the buyer pays in cash and does not finance with a mortgage). on a VA loan. However certain funding fees (percentage of total home loan paid to the VA at time of loan closing) and closing costs (expenses over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property (also called settlement costs) apply, and you must be able pay a portion of these fees upfront.
With a VA guarantee, you get a mortgage (legal document that pledges a property to the lender as security for payment of a debt) with a competitive interest rate. The lender you borrow money from is protected against loss up to the amount of the guarantee if you fail to repay the loan, and you have the flexibility to purchase a great home. Visit the Veterans Administration website for the current table of VA Funding Fees and for information on veterans who are exempt (pay zero) from funding fees.
Specifically, a VA home loan can help veterans:
- Buy a home or residential condominium
- Build a home
- Repair, alter or improve a home
- Refinance an existing home loan
- Buy a manufactured home with or without a lot
- Buy and improve a manufactured home lot
- Install a solar heating or cooling system or other weatherization improvements
- Purchase and improve a home simultaneously with energy efficient improvements
- Refinance an existing VA loan to reduce the interest rate
- Refinance a manufactured home loan to acquire a lot
There are other VA Home Loan Safeguards:
- The VA may suspend from the loan program those who take unfair advantage of veteran borrowers, or decline to sell a new home or make a loan to an eligible veteran of good credit because of race, color, religion, sex, disability, family status or national origin.
- The builder of a new home is required to give the purchasing veteran a one-year warranty that the home has been constructed to VA-approved plans and specifications. A similar warranty must be given for new manufactured homes.
- In cases of new construction completed under VA or HUD inspection, the VA may pay or otherwise compensate the veteran borrower for correction of structural defects seriously affecting livability if assistance is requested within four years of a home loan guaranty.
- The borrower obtaining a VA loan may only be charged the fees and other charges prescribed by VA as allowable.
- The borrower can prepay without penalty the entire loan or any part not less than the amount of one installment or $100.
- The VA encourages holders to extend forbearance if a borrower becomes temporarily unable to meet the terms of the loan.
VA Financing & Mortgages Options
The VA guarantees a variety of home loans. There are two basic types of loans with two additional options that are appealing to service members with special financial goals:
- Fixed-Rate Mortgage
This is the loan that most people think of when considering a mortgage. The interest rate never changes, and the monthly payment will remain the same over the life of a loan. Fixed rate loans are usually for 15 or 30 years.
- Adjustable Rate Mortgage
An Adjustable Rate Mortgage is a fluid loan where the interest rate changes with fluctuations in the market. The first-year rate (otherwise known as the teaser rate) is generally a couple of percentage points below the market rate. The "cap" is the upper limit of the interest rate. If a teaser rate is 4%, and there is a five-point cap, then the highest that an interest rate could go would be 9%. The amount that the interest rate can rise each year is usually limited to one or two percentage points per year, but the frequency at which the rate adjusts can vary. If interest rates go up, an ARM will adjust accordingly.
- VA Hybrid Adjustable Rate Mortgage Loan
This loan is fixed for period of 3 or 5 years, and then adjusts annually thereafter. It allows a 1% annual interest rate adjustment after the initial fixed interest rate period, and a 5% interest rate cap over the life of the loan. Interest rate adjustments must occur on an annual basis, except for the first adjustment, which may occur no sooner than 36 months from the date of the borrower's first mortgage payment on the 3/1 ARM or 60 months for a 5/1 ARM. The loan term is 30 years for either of these loans. Some short-term homebuyers like this option because of the lower rates in the early years.
- Graduated Payment and Growing Equity Mortgage
Both of these loans start with a low initial monthly payment and gradually increase. A GPM begins to increase in the sixth year of the loan while a GEM will gradually increase payments directly into the principal of the loan resulting in an early loan payoff.
Mortgage Option Pros and Cons
There are really just two main loan categories -- fixed and variable-rate. A variable-rate agreement, as distinguished from a fixed-rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary.
Here are some of these pros and cons for these two main types:
|
Fixed-Rate Mortgage |
Adjustable-Rate Mortgage |
|
Pro: Homebuyers can determine exactly how much they will pay each month for the next 30 years. |
Pro: Because interest rates are lower for an ARM, it's easier to borrow more. This can help first-time homebuyers afford more home. |
|
Con: Buyers pay a premium for predictability as an FRM will generally cost more than a ARM over the life a 15 to 30 year home loan. |
Con: Rising interest rates can create financial hardship if the new monthly mortgage payment rises beyond the owner's budget. |
General Rules for Eligibility
In order to obtain a VA home loan, you must first fill out VA Form 26-1880, the request for your Certificate of Eligibility. This certificate is issued only through the Veterans Administration, and is the first step towards applying for your loan. Veterans, active duty, guard or reserve, and military spouses potentially qualify for this certificate. Keep in mind that the Certificate of Eligibility, while necessary, only allows an eligible individual to apply for a home loan; it does not guarantee a loan approval.
Eligibility for the Certificate is based on an individual’s (or a spouse’s) military service. Congress establishes eligibility with strict guidelines. Here are five common categories of those who normally qualify for a Certificate of Eligibility:
Military Service Requirements for VA Loan Eligibility:
Note: Applications involving other than honorable discharges will usually require further development by VA. This is necessary to determine if the service was under other than dishonorable conditions.
Wartime - Service During:
WWII: 9/16/1940 to 7/25/1947
Korean: 6/27/1950 to 1/31/1955
Vietnam: 8/5/1964 to 5/7/1975
You must have at least 90 days on active duty and been discharged under other than dishonorable conditions. If you served less than 90 days, you may be eligible if discharged for a service connected disability.
Peacetime - Service during periods:
7/26/1947 to 6/26/1950
2/1/1955 to 8/4/1964
5/8/1975 to 9/7/1980 (Enlisted)
5/8/1975 to 10/16/1981 (Officer)
You must have served at least 181 days of continuous active duty and been discharged under other than dishonorable conditions. If you served less than 181 days, you may be eligible if discharged for a service connected disability.
Service after 9/7/1980 (enlisted) or 10/16/1981 (officer)
If you were separated from service which began after these dates, you must have:
- Completed 24 months of continuous active duty or the full period (at least 181 days) for which you were ordered or called to active duty and been discharged under conditions other than dishonorable, or
- Completed at least 181 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1171 (Early Out), or have been determined to have a compensable service-connected disability;
- Been discharged with less than 181 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances for the convenience of the Government.
Gulf War - Service during period 8/2/1990 to date yet to be determined
If you served on active duty during the Gulf War, you must have:
- Completed 24 months of continuous active duty or the full period (at least 90 days) for which you were called or ordered to active duty, and been discharged under conditions other than dishonorable, or
- Completed at least 90 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1173 (Early Out), or have been determined to have a compensable service-connected disability, or
- Been discharged with less than 90 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances, for the convenience of the Government.
Active Duty Service Personnel
If you are now on regular duty (not active duty for training), you are eligible after having served 181 days (90 days during the Gulf War) unless discharged or separated from a previous qualifying period of active duty service.
Selected Reserves or National Guard
If you are not otherwise eligible and you have completed a total of 6 years in the Selected Reserves or National Guard (member of an active unit, attended required weekend drills and 2-week active duty for training) and
- Were discharged with an honorable discharge, or
- Were placed on the retired list, or
- Were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable service, or
- Continue to serve in the Selected Reserves
- Individuals who completed less than 6 years may be eligible if discharged for a service-connected disability.
You May also be determined eligible if you:
Are an unremarried spouse of a veteran who died while in service or from a service connected disability, or
Are a spouse of a serviceperson missing in action or a prisoner of war.
Note: Also, a surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003, may be eligible for the home loan benefit. However, a surviving spouse who remarried before December 16, 2003, and on or after attaining age 57, must apply no later than December 15, 2004, to establish home loan eligibility. VA must deny applications from surviving spouses who remarried before December 6, 2003 that are received after December 15, 2004.
Eligibility may also be established for:
- Certain United States citizens who served in the armed forces of a government allied with the United States in WW II.
- Individuals with service as members in certain organizations, such as Public Health Service officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, merchant seaman with WW II service, and others.
How to request a Certificate of Eligibility for VA Home Loan Benefits
To request a Certificate of Eligibility for VA home loan benefits, you must complete VA Form 26-1880 and submit it to our VA Eligibility Center along with acceptable proof of service as described on the instruction page of the form.
It's also possible to obtain a Certificate of Eligibility from your lender. Most lenders have access to the ACE (Automated Certificate of Eligibility) system. This Internet based application can establish eligibility and issue an online Certificate of Eligibility in a matter of seconds. Not all cases can be processed through ACE - only those for which VA has sufficient data in our records. However, veterans are encouraged to ask their lenders about this method of obtaining a certificate.
VA Eligibility Center Address and Telephone Number
Please send your request for determination of Eligibility (VA Form 26-1880, along with proof of military service) to:
VA Loan Eligibility Center
PO Box 20729
Winston-Salem, NC 27120
For overnight delivery:
VA Loan Eligibility Center
251 N. Main Street
Winston-Salem, NC 27155
Toll free number: 1-888-244-6711
The toll free telephone lines to our Eligibility Center in Winston-Salem (1-888-244-6711) has been included in our National Automated Response System. Accordingly, callers are now provided a menu of information regarding the guaranteed home loan program and may exercise options from that menu which allow them to speak to VA Eligibility Personnel. Currently, the most direct route through the menu for those program participants who wish to speak to Eligibility personnel includes menu selections in the following order:
(1) - Touchtone phone
(1) - Eligibility
(2) - Status
VA Loan Frequently Asked Questions
Q: How do I apply for a VA guaranteed loan?
A: You can apply for a VA loan with any mortgage lender that participates in the VA home loan program. At some point, you will need to get a Certificate of Eligibility from VA to prove to the lender that you are eligible for a VA loan.
Q: How do I get a Certificate of Eligibility?
A: Complete a VA Form 26-1880, Request for a Certificate of Eligibility:
You can apply for a Certificate of Eligibility by submitting a completed VA Form 26-1880, Request For A Certificate of Eligibility For Home Loan Benefits, to the Winston-Salem Eligibility Center, along with proof of military service. In some cases it may be possible for VA to establish eligibility without your proof of service. However, to avoid any possible delays, it's best to provide such evidence.
Q: Can my lender get my Certificate of Eligibility for me?
A: Yes, it's called ACE (automated certificate of eligibility). Most lenders have access to the ACE (automated certificate of eligibility) system. This Internet based application can establish eligibility and issue an online Certificate of Eligibility in a matter of seconds. Not all cases can be processed through ACE - only those for which VA has sufficient data in our records. However, veterans are encouraged to ask their lenders about this method of obtaining a certificate.
Q: What is acceptable proof of military service?
A: If you are still serving on regular active duty, you must include an original statement of service signed by, or by direction of, the adjutant, personnel officer, or commander of your unit or higher headquarters which identifies you and your social security number, and provides your date of entry on your current active duty period and the duration of any time lost.
If you were discharged from regular active duty after January 1, 1950, a copy of DD Form 214, Certificate of Release or Discharge From Active Duty should be included with your VA Form 26-1880. If you were discharged after October 1, 1979, DD Form 214 copy 4 should be included. A PHOTOCOPY OF DD214 WILL SUFFICE.....DO NOT SUBMIT AN ORIGINAL DOCUMENT.
If you are still serving on regular active duty, you must include an original statement of service signed by, or by direction of, the adjutant, personnel officer, or commander of your unit or higher headquarters which shows yourdate of entry on your current active duty period and the duration of any time lost.
If you were discharged from the Selected Reserves or the National Guard, you must include copies of adequate documentation of at least 6 years of honorable service.
If you were discharged from the Army or Air Force National Guard, you may submit NGB Form 22, Report of Separation and Record of Service, or NGB Form 23, Retirement Points Accounting, or it’s equivalent.
If you were discharged from the Selected Reserve, you may submit a copy of your latest annual points statement and evidence of honorable service. Unfortunately, there is no single form used by the Reserves or National Guard similar to the DD Form 214. It is your responsibility to furnish adequate documentation of at least 6 years of honorable service.
If you are still serving in the Selected Reserves or the National Guard, you must include an original statement of service signed by, or by the direction of, the adjutant, personnel officer, or commander of your unit or higher headquarters showing the length of time that you have been a member of the Selected Reserves. Again, at least 6 years of honorable service must be documented.
Q: How can I obtain proof of military service?
A: Standard Form 180, Request Pertaining to Military Records, is used to apply for proof of military service regardless of whether you served on regular active duty or in the selected reserves. This request form is NOT processed by VA. Rather, Standard Form 180 is completed and mailed to the appropriate custodian of military service records. Instructions are provided on the reverse of the form to assist in determining the correct forwarding address.
Q: I have already obtained one VA loan. Can I get another one?
A: Yes, your eligibility is reusable depending on the circumstances. Normally, if you have paid off your prior VA loan and disposed of the property, you can have your used eligibility restored for additional use. Also, on a one-time only basis, you may have your eligibility restored if your prior VA loan has been paid in full but you still own the property. In either case, to obtain restoration of eligibility, the veteran must send VA a completed VA Form 26-1880 to our Winston-Salem Eligibility Center. To prevent delays in processing, it is also advisable to include evidence that the prior loan has been paid in full and, if applicable, the property disposed of. This evidence can be in the form of a paid-in-full statement from the former lender, or a copy of the HUD-1
settlement statement completed in connection with a sale of the property or refinance of the prior loan.
Q: I sold the property I obtained with my prior VA loan on an assumption. Can I get my eligibility restored to use for a new loan?
A: In this case the veteran’s eligibility can be restored only if the qualified assumer is also an eligible veteran who is willing to substitute his or her available eligibility for that of the original veteran. Otherwise, the original veteran cannot have eligibility restored until the assumer has paid off the VA loan.
Q: My prior VA loan was assumed, the assumer defaulted on the loan, and VA paid a claim to the lender. VA said it wasn’t my fault and waived the debt. Now I need a new VA loan but I am told that my used eligibility can not be restored. Why?
Or,
Q: My prior loan was foreclosed on, or I gave a deed in lieu of foreclosure, or the VA paid a compromise (partial) claim. Although I was released from liability on the loan and/or the debt was waived, I am told that I cannot have my used eligibility restored. Why?
A: In either case, although the veteran’s debt was waived by VA, the Government still suffered a loss on the loan. The law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full.
Q: Only a portion of my eligibility is available at this time because my prior loan has not been paid in full even though I don’t own the property anymore. Can I still obtain a VA guaranteed home loan?
A: Yes, depending on the circumstances. If a veteran has already used a portion of his or her eligibility and the used portion cannot yet be restored, any partial remaining eligibility would be available for use. The veteran would have to discuss with a lender whether the remaining balance would be sufficient for the loan amount sought and whether any down payment would be required.
Q: Is the surviving spouse of a deceased veteran eligible for the home loan benefit?
A: The unmarried surviving spouse of a veteran who died on active duty or as the result of a service-connected disability is eligible for the home loan benefit. If you wish to make application for the home loan benefit as a surviving spouse, contact our Winston-Salem Eligibility Center. In addition, a surviving spouse who obtained a VA home loan with the veteran prior to his or her death (regardless of the cause of death), may obtain a VA guaranteed interest rate reduction refinance loan. For more information, contact our Winston-Salem Eligibility Center. [NOTE: Also, a surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003, may be eligible for the home loan benefit. However, a surviving spouse who remarried before December 16, 2003, and on or after attaining age 57, must apply no later than December 15, 2004, to establish home loan eligibility. VA must deny applications from surviving spouses who remarried before December 16, 2003 that are received after December 15, 2004.]
Q: Are the children of a living or deceased veteran eligible for the home loan benefit?
A: No, the children of an eligible veteran are not eligible for the home loan benefit.
Q: Is a guaranteed loan a gift?
A: No, it must be repaid, just as you must repay any money you borrow. If you fail to make the payments you agreed to make, you may lose your home through foreclosure.
Q: Can I get a loan for a home outside of the United States?
A: Unfortunately, the law only allows VA to guarantee loans on property in the United States, its territories, or possessions.
Q: 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?
A: The VA funding fee is required by law. The fee is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers. The funding fee for second time users who do not make a down payment is slightly higher. The idea of a higher fee for second time use is based on 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 percent 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 may be financed in the loan. National Guard and Reservist veterans pay a slightly higher funding fee percentage. To determine the exact funding fee percentage, please review the Funding Fee Table below:
|
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% |
3.30% * 1.50% 1.25% |
|
Reserves/ National Guard |
None 5% or more (up to 10%) 10% or more |
2.40% 1.75% 1.50% |
3.30% * 1.75% 1.50% |
|
Cash-Out Refinancing Loans | ||
|
Type of Veteran |
Percentage for First Time Use |
Percentage for Subsequent Use |
|
Regular Military |
2.15% |
3.30% * |
|
Reserves/National Guard |
2.40% |
3.30% * |
|
Reserves/National Guard |
2.40% |
3.30% * |
|
* The higher subsequent use fee does not apply to these types 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 |
0.50% |
|
Manufactured Home Loans |
1.00% |
|
Loan Assumptions |
0.50% |
Q: I want to buy a house with a VA loan. Do I need to occupy the property?
A: 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.
Q: May a veteran join with a non veteran who is not his or her spouse in obtaining a VA loan?
A: Yes, but the guaranty is based only on the veteran's portion of the loan. The guaranty cannot cover the nonveteran's part of the loan. Consult lenders to determine whether they would be willing to accept applications for joint loans of this type. Lenders that are willing to make these types of loans will likely require a down payment to cover risk on the unguaranteed, nonveteran'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 nonveteran's income must be adequate to cover the rest.
Q: 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 the payments. If there is no CO-borrower, the loan becomes the obligation of the veteran's estate. Mortgage life insurance is available but must be purchased from private insurance sources.
Starting the Loan Application Process
Now that you've determined that you are eligible (if you aren't sure, please see the section entitled "Am I Eligible?"), you can begin the loan application process. This process involves six important steps: finding a VA approved lender, pre-qualifying for a loan, selecting your home, drawing up the purchase contract, getting the property appraised by the VA, and finalizing the loan.
Finding a VA Approved Lender
Before you begin the application process, it is a good idea to get a copy of your credit report. This can be obtained from one of the three major credit bureaus: Experian, Equifax, and TransUnion. Once you've gotten your credit report, the next step is to find a VA approved lender. A lender can point out any credit problems you might have and provide you with a loan estimate. Shop around. Compare different lenders' closing costs (expenses over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property and other fees.
Pre-Qualifying for Your Loan
Pre-qualifying for a loan is the best way to determine how much borrowing power you have. Pre-qualifying involves letting your lender know what your income and assets are. Based on that information, you can find out if you qualify for a given loan. Note that pre-qualifying only gives an estimate of the amount of mortgage payment you can afford, based on the information you provide. While pre-qualifying is not a requirement, it is highly recommended. Without pre-qualifying first, you may find yourself looking at houses that you wouldn't necessarily be able to afford. Once you pre-qualify, you'll have a strong idea of how much income you'll need to qualify. You'll also know what price range of houses you can manage, which is important for the next step.
Selecting Your Home
If you've pre-qualified for your VA Home Loan, you will have a good idea of which houses you'll be able to afford. You can now begin the process of selecting your new home. Finding a home can be accomplished through several avenues:
- Online: There are many web pages dedicated to listing homes for sale. These pages are often useful for finding homes that are out of your travel range, and often include pictures and detailed information.
- Using a REALTOR: Many people use real estate agents to navigate through the paperwork involved in buying a new home. A REALTOR can customize a search for you and send you listings with photos and detailed information about all the homes that match your criteria, saving you time and energy. Not all MLS listings are displayed on public web sites, so use a Buyer’s Agent to see all property that is available. Home Buyers typically do not pay any fees to the REALTOR for their services.
- Newspapers and other guides: Classified ads, agency ads, and real estate guides are a tried and true way, though cumbersome, way to find listings for houses on the market.
Drawing up the Purchase Contract
Also referred to as a "sales agreement" or "purchase agreement" contract, this document represents the finalized terms and conditions upon which the transfer of real estate will take place. A purchase contract is essentially an agreement between the buyer and seller to purchase an agreed upon property on agreed upon terms, whatever they may be. The Purchase Contract will among other things address: restrictions and easements, liens on the property, inspections, prior leases, disclosures, preparing of documents for closing, and maintenance of the property up to closing. Be sure to consult a REALTOR or attorney before signing any purchase contract.
VA Appraisal
Because the loan amount may not exceed VA’s estimate of the value of the property, in order to finalize the loan, you must request an appraisal by the Veterans Administration. Although anyone (buyer, seller, real estate personnel or lender) can request a VA appraisal, it normally comes from the lender via the Internet using TAS (The Appraisal System). 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. It is an estimate of the market value as of the date the inspection is made comparing it to similar homes that have recently sold in that area. Although the appraiser does look for obviously needed repairs, VA does request that appraisers not address cosmetic items. VA does not warrant the condition of existing homes. Homebuyers should carefully inspect the property themselves, or hire a reputable inspection firm to help. VA guarantees the loan, not the condition of the property. The appraiser is a licensed individual who does not work for VA but is chosen by VA to assure his/her review is unbiased in any way. The lender can not request which appraiser to use, they are assigned on a rotation basis.
Underwriting the Loan
Upon receipt of the appraisal and all supporting documentation on credit, income and assets, the lender will "underwrite" the loan. It is the lender who reviews all the data collected and decides if the loan should be granted, developed for additional data or if the veteran does not qualify and must be denied. Although VA does "underwrite" some loans, it is very rare. The decision on whether or not to approve the loan is generally made by the lender. If the established value is acceptable to all parties and the lender determines that you qualify on the basis of credit and income, the loan may be approved. Most lenders are authorized to make this decision.
Closing
The final step for loans that meet VA regulations and guidelines is the loan "closing" (when the transfer actually takes place). The lender chooses the title company, attorney or if their representative will conduct the closing. The title company, attorney or lender representative who will handle the closing will coordinate the date and time. You (and your spouse) attend the loan closing and sign the note, mortgage and other related papers. The lender or closing attorney will explain the loan terms and requirements as well as where and how to make the monthly payments. If there are any questions during the process that the lender can not assist you with, please contact a VA representative. When the loan is reported to the VA, the Certificate of Eligibility is annotated to reflect the use of entitlement and returned to the applicant. The loan closing procedure may vary in some states. Closing costs can be substantial, even with a VA loan, so get the details from your REALTOR before closing and avoid unpleasant surprises.
Hints & Tips
Below is a collection of useful, concise information regarding the Veterans Administration Home Loan.
Tip: Get Pre-Approved
Before you start the hunt for a house, the best thing you can do is to get pre-approved for your VA loan amount. The time you save quite literally will be your own. Once you have determined the loan amount you are approved for, you can start house hunting with confidence. In a tight housing market it will also give you a heads up with the seller, as other potential buyers may not have taken this important step.
Knowing in advance what you are able to afford offers a great deal of security. That kind of security will go a long way as you search for the best value for your money. Having a VA mortgage is an excellent benefit, but finding the right home is just as important. With pre-approval, you avoid wasting time with homes out of your price range or sellers who are unsure whether you are a serious buyer.
Hint: Check Your Credit
Did you know that over 70 percent of all credit reports in the United States contain errors? Your lender will be looking at your credit report and making important decisions based on the information that is contained within – decisions that could make a big difference in the bottom-line. Because lenders use complicated scoring formulas to determine how much you can borrow and at what rate it would be a good idea for you to check your credit report for any inaccuracies. Make sure you obtain a report that gives you information from all three major credit bureaus, as each may be different. What may seem minor to you might not to a lender. Contact the credit bureaus to correct any mistakes. This could result in substantial savings on the cost of your loan.
Tip: Fixed or Adjustable Rate Loan?
Chances are you will be looking for your VA guaranteed loan in the same places people go to get non-VA home loans or conventional loans. It always pays to shop around. You can choose to get a fixed rate loan, which you'll negotiate with the lender, but don’t discount the possibility of a VA adjustable rate mortgage (ARM). The interest on an ARM may be adjusted one percent annually, and up to five percent over the duration of
the loan period. So should you go with a Fixed rate or adjustable? It really depends on the buyer: In a rising rate environment a fixed rate loan can offer some piece of mind but for those who might not be planning in staying in their home more than a few year, and ARM can offer significant savings now. The best advice is to do your homework, find the most competitive rate and don’t take the first offer you get. That is a mistake often made by first time homebuyers who are excited getting into a house. The time you
spend now will yield results for years to come.
Hint: Consider the Advantages of Having a VA Guaranteed Loan
The VA allows a veteran who qualifies income and credit-wise to purchase a primary residence without putting money down towards the sales price, as long as the sales price does not exceed the appraised value. Veterans do, however, need money towards closing costs and the earnest money deposit, which the seller generally requires when a sales contract is signed. Closing costs may be paid by the seller, which is an item to consider when the sales price is being negotiated.
There are numerous advantages to having a VA mortgage. A VA mortgage loan can be guaranteed with no money down, in some cases up to $417,000. There is also no private mortgage insurance requirement with a VA guaranteed loan, which could offer you substantial savings on your monthly payment. Other benefits of using VA's program (other than the 100% financing of the sales price) include:
- Loans are assumable, provided the person assuming the loan is qualified.
- Veterans' closing costs are limited by VA.
- Additional assistance is offered by VA should veterans have problems making their home loan payments in the future.
- Prepayment of the loan without a penalty.
- Here are some quick facts you may find useful concerning purchase transactions:
- VA does not have a maximum loan amount. However, lenders do sell loans on the secondary mortgage market, so they will generally limit loans to $417,000 ($625,500 in Hawaii, Guam, Alaska and U.S. Virgin Islands) with no down payment. With a down payment, loans may exceed these amounts.
- The veteran does have to qualify income and credit wise.
- The veteran does have to occupy the home as their primary residence.
- The veteran does not have to be a first time home buyer and may reuse his/her benefit.
- The lender, not VA, sets the interest rate and discount points, so they may vary from lender to lender.
- There is no private mortgage insurance, but VA does charge an up front VA funding fee, which may be financed. The exception to this is that if a veteran is in receipt of VA service connect disability payments each month, he or she does not have to pay a VA funding fee.
- The seller can pay for closing costs. There is a requirement that seller concessions do not exceed 4%, but only certain items are considered as part of the concession; i.e., payment of pre-paids, VA funding fee, payoff of credit balances or judgments on behalf of the veteran, funds for temporary buydowns (not discount points).
- The veteran is not allowed to pay for the wood destroying insect (termite) report; it is generally paid by the seller.
- VA does not approve the majority of loans. The majority of transactions are handled directly by the lender with little VA intervention.
You can even use your VA Loan benefit to refinance an existing loan – even if it is not a VA Loan. Be sure to ask for information about the interest rate reduction loan. This program adjusts an adjustable rate mortgage to a fixed-rate loan., which is part of the Streamline Refinancing Program, which allows you to refinance at little or no expense to them.