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.
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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 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. 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 $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.
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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 percentof
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 $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.
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. 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.
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 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.
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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.
