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:
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The most important consideration, no down payment is required in most cases.
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Loan maximum 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.
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Flexibility of negotiating interest rates with the lender.
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No monthly mortgage insurance premium to pay.
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Limitation on buyer's closing costs.
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An appraisal which informs the buyer of property value
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Thirty year loans with a choice of repayment plans:
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Traditional Fixed Payment-- constant principal and interest; increases or decreases may be expected in property taxes and homeowner's insurance coverage
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Graduated Payment Mortgage (GPM)-- low initial payments which gradually rise to a level payment starting in the sixth year and
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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.
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For most loans for new houses, construction 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.
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An assumable mortgage, subject to VA approval of the assumer's credit.
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Right to prepay loan without penalty.
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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 previously used some entitlement. 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.
WHO IS ELIGIBLE?
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Veterans with active duty service, that was not dishonorable, during World War II and later periods are eligible for VA loan benefits.
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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.
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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.
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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.
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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. (See paragraph entitled "Costs of Obtaining a VA Loan").
WHAT CAN A VA LOAN BE USED FOR?
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To buy a home, including townhouse or condominium unit, in a VA-approved project.
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To build a home.
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To simultaneously purchase and improve a home.
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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.
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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.
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To buy a manufactured home and/or lot.
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 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.
FIVE EASY STEPS TO A VA LOAN
- Apply for a Certificate of Eligibility. A veteran who doesn't have a certificate can obtain one easily by making application on VA Form 26-1880, Request for Determination of Eligibility and Available Loan Guaranty Entitlement, to the local VA office.
- Decide on a home the buyer wants to purchase 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.
