Many veterans and service personnel are eligible for 100% VA financing in the U.S. There is not doubt that if you have VA loan benefits available to you, this is best option if you have less than 20% down payment. Many veterans have already used their loan benefits, it may be possible for them to buy a home again with VA financing using remaining or restored loan entitlement.
Before applying for a new purchase mortgage, veterans should consider some of the advantages of VA home purchase benefits in 2016:
- No down, 100% financing. The VA and USDA mortgage are the only programs in the U.S. that still permit 100% financing.
- Secure and safe fix 30 year terms. Home buyers also have the option to do adjustable rate terms.
- VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties.
- No PMI or monthly mortgage insurance – this alone can save Vets hundreds each month.
- Limitation on buyer’s closing costs.
- An appraisal which informs the buyer of property value.
- Right to prepay loan without penalty.
Exactly what is a VA “guaranteed” Loan?
VA loans are made by approved lenders, such as a mortgage company, savings and loan, bank or brokers. 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.
What can a VA loan be used for?
- The purchase of a single family home, including townhouse or condominium unit in a VA approved project.
- 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 100% of the VA established reasonable value or to refinance an existing VA loan to reduce the interest rate (IRRRL)
Who is Eligible for a VA Mortgage?
Veterans with active duty service, that was not 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 October 28, 1999. 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.
Are you a Vet that has used your VA loan eligibility in the past?
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 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 downpayment 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.
How to Get a VA Loan, 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. Need help? Please just submit the quick Info Request Form on the right side and a VA loan specialist will contact you 7 days a week. Mobile users will find the Info Request link at the top of their page.
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.
VA Loan 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 high enough to cover the loan needed, the lender will schedule the closing.
- 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, 620 min score.
- 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.
- We will be able to discuss specific income and other qualifying requirements.
Costs of Obtaining a VA Loan
See the latest VA purchase funding fee chart here. 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. 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 or discount points for those that choose a interest rate buy down (usually 1-2 percent of the loan)
- Title search and title insurance
- Recording fees
- State and/or local transfer taxes, if applicable
- Limited commissions, brokerage fees or “buyer broker” fees may be charged to the veteran buyer.
Home buyers will also find the video below helpful:
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