The
U.S. Veterans Adminstration Loan Guaranty Loan Benefit
VA's
Home Loan Program is for U.S. Veterans and Active Duty Military
Personnel and certain members of the reserves and National Guard.
VA's program provides an excellent product and benefit for those
individuals who have served or are serving to protect our families
and our nation, as well as giving them a form of financing that
will allow real estate professionals to sell more homes.
For those
who are unfamiliar with the program, there are several advantages
to using VA's Home Loan Program. 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.
Other
benefits of using VA's program (other than the 100% financing
of the sales price) include:
* Loans
are assumable, provided the assume is qualified.
* Veterans's 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.
Here
are additional items you may choose if you find them useful:
*
Certificates of Eligibility - What is needed, and how
to obtain it.
* Lost proof of service? Visit the National
Archives and Records Administration or from the American
War Library
How
much can the veteran afford (and other important factors)?
Please note
that VA uses two methods for qualification purposes. The primary
method of evaluating a veteran's income is the residual income
method. Under this method, the underwriter determines that a
veteran has sufficient income to cover day-to-day living expenses
after paying housing expenses, taxes, and other debts such as
car payments and credit card payments. VA also uses a debt-to-income
ratio method like many programs. However, VA uses only one ratio
which is the ratio of total debt (both housing and other debt)
to income. To calculate the ratio click here.
Important:
This is provided for informational purposes only. A VA approved
lender is the best resource to see how large a VA loan the veteran
truly qualifies for. The lender will look at income (amount
and stability), credit and compensating factors involved when
rendering a decision. VA also allows lenders to use certain
approved automated underwriting systems.
Other
Useful Links:
* Ginnie
Mae - This site will give you information on the process
and calculators
* HUD -
Contains information on shopping for a home, closing costs
and terminology
* MBA (Mortgage Bankers
Association of America) - Will give you information on the
purchase process, calculators and real estate terms.
* Freddie
Mac (Federal Home Loan Mortgage Corp.) - Site will give
you information about the purchase process and real estate
terms.
* FNMA
(Fannie Mae) - Contains information on the purchase process.
Steps
in the Process of a VA Home Loan:
There are
five basic steps when obtaining a VA backed home loan.
Although there are los of details within each step and some
may overlap, here is a basic overview of how the process works.
- The
veteran selects a home they are interested in. The purchase
and sales agreement should contain a VA option clause. Sample
wording for a VA option clause:
"It is expressly agreed that, notwithstanding any other
provisions of this contract, the purchaser shall not incur
any penalty by forfeiture of earnest money or otherwise
of be obligated to complete the purchase of the property
described herein, if the contract purchase price or cost
exceeds the reasonable value of the property established
by the Department of Veterans Affairs. The purchaser shall,
however, have the privilege and option of proceeding with
the consummation of this contract without regard to the
amount of the reasonable value established by the Department
of Veterans Affairs."
The contract must also allow the veteran to "escape"
from the contract without penalty if he/she is unable to
obtain a VA loan. Some veterans prefer to contact a lender
to get "pre-qualified" (see how much they can
afford) prior to searching for a home. Veterans may also
apply for a certificate of eligibility prior to looking
for a home or contacting a lender. Please review our site
for information on certificates of eligibility and a listing
of lenders.
- Contact
a lender to apply for the loan. At this point, if the veteran
has not already obtained his/her certificate of eligibility,
they will need to. The lender may be able to obtain it off
the internet or the veteran may have to complete a form
and send it to the appropriate eligibility center. In either
case the lender will be able to assist in the procedures
of how to obtain a certificate of eligibility. The lender
will complete a loan application and gather supporting documentation,
i.e., paystubs and bank statements. An important item for
veterans to know is that lenders set their own interest
rates, discount points and closing points.
- The
lender will "process" (develop) all credit and
income information. Lenders are allowed to use VA approved
automated underwriting systems. The lender will also order
a VA appraisal. VA's appraisal is not a home inspection
or a guaranty of value. 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. 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 bases.
- 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.
-
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.
If there are any questions during the process that the
lender can not assist you with, please contact a VA representative.
* The information above has
be reposted directly from the VA's
Official Web Site
-- Equal
Opportunity Lender - Providing VA Home Mortgage Loans to U.S. Military
Veterans