Who is Eligible for a VA Loan?
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.
Why a VA Loan?
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 downpayment 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.
Obtaining a VA Loan
1. 5 Steps to a VA Loan
A. 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 the 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.
B. Decide on a home the buyer wants to buy
and sign a purchase agreement
C. 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.
D. 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.
E. Close the loan and the buyer moves in.
2. 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. 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.
3. 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.
VA Loan Uses
- 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.
VA Loan Costs
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.
In addition, reasonable closing costs may be charged by the mortage
company. 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 companies and also throughout the nation because of
differing local laws and customs.
VA loan costs may include 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.
VA Financing - A Good Deal For Veterans
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 downpayment 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 $203,000.
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. Adjustable Rate Mortgage-ARM (lower initial interest rate may allow
qualification for a higher loan amount. Annual interest rate adjustment
is limited to 1 percent and maximum increase in the interest rate over
the life of the loan is capped at 5 percent) .
c. Graduated Payment Mortgage--GPM (low initial payments which gradually
rise to a level payment starting in the sixth year); and
d. 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.
What Is A VA-guaranteed Loan?
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 $203,000 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.
Had A VA Loan Before?
1. 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 $14,750, up to a maximum entitlement of $50,750 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 downpayment 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
downpayment loan to buy a property valued at and selling for $94,000.
The veteran could also combine a downpayment with the remaining
entitlement for a larger loan amount.
2. 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.
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.
Costs Of Obtaining A VA Loan
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 downpayment 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 downpayment 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 downpayment 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.
Need More Information?
Veterans seeking more detailed information concerning the VA home
loan program may request VA Pamphlet 26-4, VA-Guaranteed Home Loans for
Veterans, or VA Pamphlet 26-6, 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 homebuyer
or know of one, it makes sense to look into the VA loan program as a
good way to finance a home purchase.
A list of VA offices may be found at:
http://www.va.gov/publ/BENMAN95/help.htm
or look below on the list we provided.
Your local VA regional office may be reached by dialing
1-800-827-1000.
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