Veterans Administration Loans- VA Loans
VA Home Loans - A quick guide for home
buyers and real estate professionals
The more you know
about our home loan program, the more you will realize how little
"red tape" there really is in getting a VA loan. These
loans are often made without any down payment at all, and
frequently offer lower interest rates than ordinarily available
with other kinds of loans. Aside from the veteran's
certificate of eligibility and the VA-assigned appraisal, the
application process is not much different than any other type of
mortgage loan. And if the lender is approved for automatic
processing, as more and more lenders are now, a buyer's loan
can be processed and closed by the lender without waiting for
VA's approval of the credit application.
Additionally, if
the lender is approved under VA's Lender Appraisal Processing
Program (LAPP), the lender may review the appraisal completed by
a VA-assigned appraiser and close the loan on the basis of that
review. The LAPP process can further speed the time to loan
closing.
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- Apply for a
Certificate of Eligibility.
A veteran who doesn't have a certificate can obtain one
easily by completing VA Form 26-1880, Request for a Certificate of
Eligibility for VA Home Loan Benefits and submitting it to one of our
Eligibility Centers with
copies of your most recent discharge or separation papers
covering active military duty since September 16, 1940, which
show active duty dates and type of discharge.
- Decide on a home
the buyer wants to buy and sign a purchase agreement
- Order an
appraisal from VA. (Usually this is done by the lender.)
Most VA regional offices offer a "speed-up" telephone
appraisal system. Call the local VA office for
details.
- Apply to a
mortgage lender for the loan.
While the appraisal is being done, the lender (mortgage company,
savings and loan, bank, etc.) can be gathering credit and income
information. If the lender is authorized by VA to do automatic
processing, upon receipt of the VA or LAPP appraised value
determination, the loan can be approved and closed without
waiting for VA's review of the credit application. For loans
that must first be approved by VA, the lender will send the
application to the local VA office, which will notify the lender
of its decision.
- Close the loan
and the buyer moves in.
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More than 29
million veterans and service personnel are eligible for VA
financing. Even though many veterans have already used their loan
benefits, it may be possible for them to buy homes again with VA
financing using remaining or restored loan
entitlement.
Before arranging
for a new mortgage to finance a home purchase, veterans should
consider some of the advantages of VA home loans
1. Most important
consideration, no down payment is required in most
cases.
2. Loan maximum
may be up to 100 percent of the VA-established reasonable value
of the property. Due to secondary market requirements, however,
loans generally may not exceed $240,000.
3. Flexibility of
negotiating interest rates with the lender.
4. No monthly
mortgage insurance premium to pay.
5. Limitation on
buyer's closing costs.
6. An appraisal
which informs the buyer of property value.
7. Thirty year
loans with a choice of repayment plans:
a. Traditional
fixed payment (constant principal and interest; increases or
decreases may be expected in property taxes and homeowner's
insurance coverage);
b. Graduated Payment Mortgage--GPM (low initial payments which
gradually rise to a level payment starting in the sixth year);
and
c. In some areas, Growing Equity Mortgages-GEMs (gradually
increasing payments with all of the increase applied to
principal, resulting in an early payoff of the loan).
8. 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.
9. An assumable
mortgage, subject to VA approval of the assumer's
credit.
10. Right to
prepay loan without penalty.
11. VA performs
personal loan servicing and offers financial counseling to help
veterans avoid losing their homes during temporary financial
difficulties.
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These loans are
made by a lender, such as a mortgage company, savings and loan or
bank. VA's guaranty on the loan protects the lender against
loss if the payments are not made, and is intended to encourage
lenders to offer veterans loans with more favorable terms. The
amount of guaranty on the loan depends on the loan amount and
whether the veteran used some entitlement previously. With the
current maximum guaranty, a veteran who hasn't previously
used the benefit may be able to obtain a VA loan up to $240,000
depending on the borrower's income level and the appraised
value of the property. The local VA office can provide more
details on guaranty and entitlement amounts.
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WHAT CAN A VA
LOAN BE USED FOR?
- 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 improve a home
by installing energy-related features such as solar or
heating/cooling systems, water heaters, insulation,
weather-stripping/ caulking, storm windows/doors or other energy
efficient improvements approved by the lender and VA. These
features may be added with the purchase of an existing dwelling
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 percent of the appraised value plus the costs of
the improvements. Check with a lender or VA for
details.
- 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.
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WHO IS
ELIGIBLE?
Veterans who
served on active duty and were discharged under conditions other
than 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
Conflict. Basically, 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.
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 September 30,
2003. Contact the local VA office to find out what is needed to
establish eligibility. Reservists will pay a slightly higher
funding fee than regular veterans. (See paragraph entitled
"Costs of Obtaining a VA Loan").
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HAD A VA LOAN
BEFORE?
Remaining
Entitlement
Veterans who had a
VA loan before may still have "remaining entitlement"
to use for another VA loan. The current amount of entitlement
available to each eligible veteran is $36,000. 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 $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 $24,000, up to a maximum
entitlement of $60,000 is available for loans above $144,000 to
purchase or construct a home.
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 $23,500 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 $94,000. The veteran could also combine a down
payment with the remaining entitlement for a larger loan
amount.
Restoration of
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. Remaining
entitlement and restoration of entitlement can be requested
through the nearest VA office by completing VA Form
26-1880.
- The 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.
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VA Appraisal-
Certificate of Reasonable Value
The CRV
(certificate of reasonable value) is based on an appraiser's
estimate of the value of the property to be purchased. Because
the loan amount may not exceed the CRV, the first step in getting
a VA loan is usually to request an appraisal. Anyone (buyer,
seller, real estate personnel or lender) can request a VA
appraisal by completing VA Form 26-1805, Request for
Determination of Reasonable Value. After completing the form, it
can either be mailed to the Loan Guaranty Division at the nearest
VA office for processing or an appraisal can be requested by
telephoning the Loan Guaranty Division for assignment of an
appraiser. The local VA office may be contacted for information
concerning its assignment procedures. The appraiser will send a
bill for his or her services to the requester according to a fee
schedule approved by VA. To simplify things, VA and HUD/FHA
(Department of Housing and Urban Development/Federal Housing
Administration) use the same appraisal forms. Also, 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. The local VA office can explain how
this is done.
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. Home buyers 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.
Application
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 10
percent of VA loan applications have to be submitted to a VA
office for approval before closing.
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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.
An experienced
mortgage lender will be able to discuss specific income and other
qualifying requirements.
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COSTS OF
OBTAINING A VA LOAN
Funding
Fee
A basic funding
fee of 2.0 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 1.5 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 2.0 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 or subsequent time who do not make
a down payment of at least 5 percent are charged a funding fee of
3 percent.
NOTE: For all
VA home loans, the funding fee may be paid in cash or it may be
included in the loan.
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.
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NEED MORE
INFORMATION?
Veterans seeking
more detailed information concerning the VA home loan program may
request VA PART 36 LOAN GUARANTY , VA-Guaranteed Home Loans for
Veterans, or Veterans
Housing Opportunity and Benefits Act of 2006, To the Home-Buying
Veteran, from the nearest VA office. Loan Guaranty personnel
at that office will also be pleased to answer specific questions
and provide any other assistance they can.
Remember,
VA-guaranteed financing is a benefit which Congress intended
eligible veterans should have. If you are a veteran home buyer or
know of one, it makes sense to look into the VA loan program as a
good way to finance a home purchase.
