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Foreword
This pamphlet is designed to help
veterans planning to purchase or construct homes, particularly
those veterans who intend to finance with VA home loans.
The most
important topics discussed in this pamphlet are:
- The cost of
homeownership;
- Finding a
suitable and affordable home;
- The
agreement to purchase the home;
- Closing the
loan (final settlement); and
- Before and
after moving day.
Also be sure to look at the Checklist
for Use in Buying or Building a Home.
This pamphlet does not try to
discuss the arguments for or against homeownership. It is up to
each veteran to decide whether homeownership is best for his or
her family.
This pamphlet does not apply to
manufactured (mobile) homes. See VA
Pamphlet 26-71-1 for information about this type of home.
See VA
Pamphlet 26-4 for details about VA-guaranteed loans.
Since the end of World War II more
than 14 million veterans have bought homes with the aid of VA
loans. The great majority of these veterans have bought soundly
constructed homes and are now making regular payments on their
mortgages as satisfied homeowners.
However, a very small percentage of
these veterans have had just cause to be dissatisfied with the
outcome of their venture into homeownership. It is hoped that this
pamphlet, by stressing the important things that a prospective
homeowner should know, will help to reduce the number of these
cases in the future.
Buying a home is usually the most
important financial transaction in the lifetime of the average
family. Before you decide to buy a home, therefore, you and your
family should be certain that you are:
- GETTING THE RIGHT HOUSE-THE ONE
THAT SUITS THE NEEDS OF YOUR FAMILY.
- AWARE OF THE RESPONSIBILITIES
THAT HOMEOWNERSHIP BRINGS.
What VA Does For The
Home-Buying Veteran
VA guarantees part of your
loan--which helps you to get a VA loan featuring:
- No downpayment (unless required
by the lender or the purchase price exceeds the reasonable
value as determined by VA); and
- Competitive interest rate and
the flexibility of negotiating interest rates with the lender;
- Assurance that you can pay off
all or part of the loan in advance without penalty.
VA appraises the house to determine
its reasonable value in the housing market at the time the
appraisal is made.
VA requires compliance inspections
in most cases on proposed new construction to see that the house:
- Meets accepted standards of good
construction.
- Conforms to the plans and
specifications on which VA's appraisal is based.
VA will try to assist you in
getting your builder to correct any defects about which you may
have valid complaints.
What VA Does Not Do
VA does not have the legal
authority to:
- Act as your architect. It does
not supervise construction of the house you buy.
- Guarantee that the house is free
of defects.
- Act as your attorney. It cannot
provide you legal services if you run into trouble in buying
or constructing your home.
VA cannot compel a builder to
remedy defects in construction or otherwise compel the builder to
live up to a contract with you.
VA cannot guarantee that you will
be completely satisfied with the house, or that you can resell it
at the price you paid.
VA cannot guarantee that you are
making a good investment. That is a decision which only you can
make.
Do Not Be Misled
VA does not guarantee the
CONDITION of the house which you are buying, whether it is new or
previously occupied. VA guarantees only the LOAN. You may talk
to many people when you are in the process of buying a house.
Particularly with a previously occupied house, you may pick up the
impression along the way that you need not be overly concerned
about any needed repairs or hidden defects since VA will be sure
to find them and require them to be repaired. This is NOT TRUE! In
every case, ultimately, it is your responsibility to be an
informed buyer and to assure yourself that what you are buying is
satisfactory to you in all respects. Remember, VA guarantees only
the loan - NOT the condition of the house.
If you have any doubts about the
condition of the house which you are buying, it is in your best
interest to seek expert advice before you legally commit
yourself in a purchase agreement. Particularly with a previously
occupied house, most sellers and their real estate agents are
willing to permit you, at your expense, to arrange for an
inspection by a qualified residential inspection service. Also,
most sellers and agents are willing to negotiate with you
concerning what repairs are to be included in the purchase
agreement. Steps of this kind can prevent many later problems,
disagreements, and major disappointments.
One of the common errors made by
people buying homes is to think that the only cost will be monthly
payments of principal and interest on the mortgage. It is
important to keep in mind that there are other items which have to
be paid which add up to a substantial outlay. Before you buy, be
sure that your income is sufficient to cover all of the cost which
you will have to pay.
Initial Cash Outlay--Closing
Costs
First, you must have enough cash to
make a downpayment, if required. (The downpayment is the
difference between the purchase price and the amount of the loan
which the lender will make to you.)
Then, in addition to the
downpayment, you will have to pay for a number of items commonly
called "closing costs." These costs, which can be
substantial, must be paid in cash at the time the loan is made.
The term "closing costs"
generally refers to all charges paid for obtaining the mortgage
loan and transferring real estate title. While the sharing of
closing cost items between buyer and seller may be agreed to in
the contract of purchase, all or a significant part of the closing
costs are frequently paid by the buyer.
Among the items which the buyer may
be required to pay for are title search, title insurance (a
lender's policy and, if desired, a buyer's policy), survey, credit
report, appraisal fee and related compliance inspection fee, if
needed, recording fee, State and/or local transfer taxes, a VA
funding fee, discount points and a lender's origination fee
(usually 1 percent of the loan amount; for example, $500 on a
$50,000 loan). The purpose of the origination fee is to cover
certain costs to the lender in making the loan, if these costs are
not paid itembyitem by the borrower.
Certain other costs, technically
referred to as "prepaid items," must be paid by the
buyer at the time of loan closing. Among such costs are the
buyer's share of the current year's real estate taxes and the
first year's premium for hazard insurance. These costs also become
part of the recurring costs of homeownership due each year.
If you are purchasing a home in an
area where title insurance is the method used to assure good title
to the property, it is advisable to inquire about the existing
title insurance policies (lender's and seller's) on the property,
for it may be possible for you to obtain a policy at a reissue
rate. The reissue rate is usually lower than the original rate and
may be available for both lender's and buyer's policies. Reissue
rates are usually limited to the reissuance of a policy on the
same property by the same title company that insured title in the
present owner within 10 years. Some title insurers will extend the
reissue rate to policies written by other companies. Your seller
will probably have the information about the date, type, and
amount of any existing policy or policies that you need to support
a request to the title company for the reissue rate.
Equal Housing Opportunity
Discrimination in the sale of
housing because of race, color, religion, sex or national origin
is prohibited by Federal laws. In November 1962, Executive Order
11063 banned discrimination in all federally assisted housing. The
"Fair Housing Law," Title VIII of the Civil Rights Act
of 1968, followed by amending legislation, required positive
action be taken by Federal agencies to prevent discrimination in
all housing. Further, title VIII protects you from the following
acts when they are based on discrimination on account of race,
color, religion, sex, handicap, family status. or national origin:
- Refusal to deal,
- Discrimination in terms of sale,
- Discriminatory advertising,
- False representations that a
dwelling is not available,
- Blockbusting,
- Discrimination in financing, and
- Discrimination in real estate
services.
These laws provide every person an
equal opportunity to choose suitable housing.
The Department of Veterans Affairs
affirmatively administers the VA housing program by assuring that
all veterans are given an equal opportunity to buy homes with VA
assistance. When participating in the VA program, all builders,
brokers and lenders must comply with Executive Order 11063 and the
Civil Rights Act of 1968, as amended.
Builders must sell newly
constructed homes with VA financing to eligible veterans without
regard to the race, color, religion, sex, handicap, family status,
or national origin of the veteran.
Brokers participating in the VA
home loan program must not discriminate against a person on the
basis of race, color, religion, sex, handicap, family status, or
national origin by refusing to show or sell a property; by
discriminating in the terms of the sale; or by representing that
property as not available for inspection.
Lenders participating in the VA
loan program are required by the Civil Rights Act of 1968, as
amended, to act on applications for VA home loans without regard
to the race, color, religion, sex, handicap, family status or
national origin of the veteran. In addition, the Equal Credit
Opportunity Act prohibits a lender from discriminating against an
applicant on the basis of the foregoing, or on the basis of age or
marital status; because an applicant's income derives from any
public assistance program; or because the applicant has exercised
any right under the Consumer Credit Protection Act. Lenders are
also prohibited from discouraging applications on these grounds,
and, to ensure that each applicant is fully aware of his or her
rights under the Equal Credit Opportunity Act, a lender must
provide each applicant with the Equal Credit Opportunity Act
Notice and a written statement of reasons when credit is denied.
Therefore, if you are seeking to
use your entitlement to buy a home, you may be assured that VA
will protect your civil rights and equal housing opportunity.
The following actions, when based
on discrimination because of race, color, religion, sex, handicap,
family status, or national origin. are recognized violations of
the Federal Fair Housing Law:
- Refusal to negotiate to sell
property;
- Discrimination in terms or
conditions of sale of real property;
- Advertising indicating any
racial, religious, ethnic, or gender preference;
- False representations that real
property is not available for inspection or sale;
- Blockbusting or inducing owners
to sell real property by representations regarding entry into
the neighborhood of persons of a particular race, color,
religion, sex, handicap, family status, or national origin for
profit; and
- Discrimination in financing,
terms or conditions of a loan, or denying a loan.
If you experience or suspect
discrimination by a builder, broker or lender, the local VA office
will investigate. To start a VA investigation, submit a written
complaint directly to the local VA office. Your complaint must
describe the discriminatory action including the date it occurred,
names, addresses, and telephone numbers of all parties involved in
the action, and the address of the property involved. VA has a
form for this purpose (VA Form 26-8827, Housing Discrimination
Complaint) which you may request from your local VA office.
You should note that in many
localities fair housing associations have been organized to assist
you in locating and purchasing a house of your choice. There may
be such an organization in your area.
When the alleged discrimination
concerns HUD/FHA (Department of Housing and Urban
Development/Federal Housing Administration) home loans and other
housing, complaint letters should be sent to the Department of
Housing and Urban Development, Assistant Secretary for Equal
Opportunity, Washington. D.C. 20410.
Other Housing Opportunities
If you are unable to find new homes
available for sale with VA financing in your area, or if you are
unable to determine whether particular homes being built are
available for sale with VA financing, the local VA regional office
may be able to assist you. In addition, in many areas VA has repossessed
homes which it will sell to qualified buyers. Inquiry as to
the availability of any VA repossessed homes for sale in the area
in which you are interested may be made by contacting local real
estate brokers.
Another area to be explored is
State benefits. Many States offer housing programs which are
independent from federal programs. The programs and benefits, as
well as the qualifying criteria, may differ from one State to the
next. Information on State programs may be obtained from State
officials or from the local VA regional office.
The Real Estate Settlement
Procedures Act requires the lender to give you a good faith
estimate of the cost of closing within 3 business days after
taking your loan application. The cost of individual items
included in a given transaction may vary a good deal throughout
the nation because of differing local laws and customs. Closing
costs may also vary among lenders and you may wish to compare the
closing costs charged by different lenders before applying for the
loan.
In addition to the downpayment and
closing costs, don't forget to allow for any expenses you will
have for moving and for furnishings and equipment at the time you
move into your new home, as well as a reserve for emergencies. It
should be remembered, however, that the more you are able to pay
as a downpayment, the less interest you will have to pay over the
life of the loan.
Future Costs of Homeownership
The downpayment, if any, and
closing costs are costs you will have when your loan is made. But
they are only the initial costs. You must also be able to pay the
future costs from your income, as follows:
- Mortgage Payments. You
will be required to make monthly payments to cover interest
and principal on the mortgage. This is the biggest item of
monthly expense but is by no means the only one.
- Taxes and Insurance. You
will also have to pay future real estate taxes and
assessments, and for insurance on the property (that is,
insurance that will pay for losses due to fire or other
hazards). Usually an amount to cover real estate taxes and
insurance will be added to the monthly payment you make to the
lender. You should bear in mind that your monthly payment may
later be increased if real estate taxes or insurance costs
rise. To assure yourself of the accuracy of the tax estimated
by the builder or seller of the property, you may wish to
discuss this matter with your lender and check with the local
taxing authority.
- Heat and Utilities. You
will have to pay the heating cost and the utility bills. The
amount of your fuel bill will vary, depending upon the
climate, how well the house is insulated, etc. Utility bills
for electricity, water, gas, and the like will also vary,
depending on the extent to which your household uses them. In
figuring whether you can afford to pay the expenses on the
home you propose to buy, be sure to make adequate allowance
for these items. Your lender will be able to help you estimate
these costs. It might also be a good idea to check with other
homeowners with similar houses in the area.
- Maintenance. Remember
that, like everything else, your house will wear out as it
gets older. To keep it in a good shape, you will have to pay
for the cost of maintenance and repairs. You will have to
paint your home every few years. Your heating and electric
system will need repairs from time to time; you will have to
replace equipment, and so on. An individual sewage disposal
system will require care and maintenance. (See here)
If yours is a wellbuilt new home, these expenses should not be
too large during the first 2 or 3 years, but will rise as your
property gets older. You should seek advice from a qualified
source as to the probable cost of maintenance, so that you can
put aside a small amount each month for future maintenance
expenses.
If you are required to become a
member of a neighborhood homeowner association, the dues or
periodic assessments payable tothe association may be a
significant expense item. These homeowner associations are formed
for the purpose of providing maintenance of items such as
residence exteriors, neighborhood recreational facilities, and
park and landscaped areas which are part of the residential
development. Typically, these developments consist of apartments,
townhouses or semi detached homes, together with "common
areas" deeded to the homeowner association. They may be
called "townhouses on the green," "plannedunit
developments," "planned developments,"
"condominiums," "open space communities."
- Other Debts. If you
already have other debts such as furniture or automobile
payments, or if you will have to buy things for your home on
an installment plan, be sure you can afford to meet these
payments in addition to the other costs discussed above. Some
home buyers run into serious trouble because they burden
themselves with too many things for their new home on the
installment plan. Don't let yourself be highpressured into
buying extras or expensive special equipment. These items may
be desirable, but you should buy them only if you can pay for
them without straining your ability to pay for your housing
and other living expenses.
Before deciding to buy a home, get
out your pencil and figure out your total monthly costs. The
financing checklist which follows will help you on this.
There is no fixed rule which can
determine how much an individual family can pay for total monthly
housing expenses. It is a problem for each individual family to
work out. The main thing is to make sure that the monthly cost of
your home won't strain your budget. Generally, your lender will be
able to advise you whether your income and that of your spouse is
high enough to qualify for a VA loan.
Another good check is to compare
the total housing expenses you will have to pay with what you are
now paying for rent or for the house you now own. If the new home
you plan to buy or build will increase the monthly expense above
what you are now paying, be doubly certain that you can pay the
increased costs without too much strain.
If you are not sure you can handle
the costs involved based on your present and anticipated income,
you should postpone buying a home until you are sure you can carry
the total monthly cost, or buy a less expensive home which you can
afford.
A Financing Checklist
|
| Add these figures and then compare them to your assets
and monthly income: |
| Downpayment |
_____________ |
| Closing Costs* |
| VA funding fee |
_____________ |
| Loan origination fee ( I percent of the loan) |
_____________ |
| Discount Points (each point equals 1% of the loan) |
_____________ |
| Title search and examination |
_____________ |
| Various legal fees |
_____________ |
| Other charges (credit report, appraisal fee, title
insurance,recording fees. survey) |
_____________ |
| Total Initial Cost |
| Monthly payment on mortgage |
_____________ |
| Monthly payments on taxes and assessments |
_____________ |
| Monthly payments on insurance |
_____________ |
| Total Monthly Payment |
_____________ |
| Plus |
|
| Probable fuel cost (average per month) |
_____________ |
| Probable monthly utility cost (lights, water, gas,
etc.) |
_____________ |
| Estimated monthly maintenance and repair expenses |
_____________ |
| Total Monthly Cost |
_____________ |
| *If you don't know these amounts, you can use an
average ofabout 3-1/2 percent of the loan amount plus
discount points. |
The total monthly cost is the
figure you should compare with your weekly or monthly pay. Study
carefully to make sure that you will be able to pay the total
monthly cost out of your income and/or your spouse's income and
still have enough to meet all the other items in your family
budget; i.e..
- DEDUCT:
- Total monthly cost from net
income (monthly takehome pay)
- BALANCE:
- Is it sufficient for food,
clothing, medical care, automobile, monthly payments on
consumer credit accounts, other family expenses, and savings
for emergency and future expenses?
The Neighborhood
If you want to be entirely
satisfied with your new home, be sure that you can answer yes to
the following questions:
- Is the house suitably located
for schools, churches, shopping facilities, transportation and
your place of work?
- Is the neighborhood well
maintained and are the other houses similar in type and price
range to the one you wish to buy?
- Does the area have local zoning
laws or deed restrictions which will protect the neighborhood?
Zoning laws and deed restrictions protect against such things
as the construction of commercial property in residential
areas, and may regulate lot sizes, the types of houses that
can be built in the area, and whether or not manufactured
homes may be placed on privately owned land.
- Is the house located so that you
won't be bothered by noise, dirt, and danger from highways and
other streets with heavy traffic?
- If not already installed, will
there be adequate streets, sidewalks, curbs, and gutters?
These items are called "offsite improvements," and
you should be sure which of these improvements are included in
the sales price of the house and that they will be provided
without additional cost to you.
Remember that if "offsite
improvements," such as sidewalks, street curbs and pavements,
storm sewers and sanitary sewers are not included in the purchase
price, their cost may be assessed against you if they are
installed by the city or county, and you will have to pay for them
later. It is a good idea to have the builder or seller list on the
purchase agreement the "offsite improvements" which are
included in the sales price.
The Lot
In addition to the general location
and neighborhood, you should make sure you are going to be
satisfied with the size and shape of your lot, and with the
existing or proposed lawn, shrubbery, walks, driveway, garage.
etc. If any additional work on the lot is to be done, make sure
that the purchase agreement lists all such improvements which the
builder or seller will make as part of the purchase price. If you
want to have play space for the children, or a garden, make sure
that sufficient space is available.
Will the land be properly graded to
provide diversion of water away from the building and from the
lot, to prevent standing water and soil saturation harmful to the
structure and to lot use, and also provide appropriate finished
grades for safe and convenient access to and use of the lot area?
If it is an existing house, take careful notice of the slope of
the ground around the house. It should slope away from the house
so that water will be carried away from the foundation; otherwise,
the water may cause trouble. If possible, check the lot after a
heavy rain to see whether it drains properly.
If you are building a house or
placing a manufactured home on land you are purchasing separately
or already own, consider how far away the utilities are and the
cost of hookup. If service from a public or community water or
sewage system is not available, find out if the ground water and
subsoil conditions are satisfactory for an individual well and/or
sewage disposal system.
The House Itself
If you buy a house with a VA loan,
VA will appraise the property to establish its reasonable value,
which is an estimate of the current market value. You will be
notified of the reasonable value. If you are building a home or
buying a newly completed home with VA financing, VA or HUD/FHA
will usually inspect the property during construction. These
inspections are to see that the house is constructed according to
the plans and specifications originally filed with VA and that it
meets the minimum property requirements established by the
Government.
This inspection service is valuable
to you because it helps assure that your builder follows the
construction practices advocated by the Government to assure a
sound structure. It does not give you architectural supervision
and does not assure you that you will be completely satisfied with
what you get. Your main reliance must be on the reputation and
integrity of the builder from whom you choose to buy.
But remember that the Government
cannot guarantee you that the house is properly constructed in all
respects, nor can it guarantee that you will be satisfied with the
house in every way. The responsibility of the Government is
limited under the law. VA is guaranteeing your loan, but it cannot
under the law guarantee your house.
Because of this, it is very
important that you have confidence in the ability and honesty of
the company or person who is building or has built the house. If
you have any doubts at all, be sure to get the advice of people
you can trust who know the homebuilding business. A few words of
good advice from a responsible person can save you years of future
trouble.
If you plan to have a new house
built according to your plans it would in all likelihood pay you
to employ the services of an architect.
If you are buying an
"old" house (that is, a house that has been previously
occupied), there will, of course, be no VA or FHA inspection
during construction. It is extremely important for you to make
sure that the house is structurally sound. Here, too, the advice
of someone who understands housing construction can be helpful.
As you look over the house, your
primary job is to make sure that the house meets the needs of your
family. The checklist should help you in
checking over the main features of the house. The following
pointers are given to help you to know what to look for.
Floors
You should examine the floors very
carefully to see that they are level and without serious surface
defects. If it is a wood floor, take careful note to see that the
joints are tight and that it has been properly sanded and
finished. Small knots in the flooring do not necessarily mean that
it is of poor quality, but they must be tight knots to be
acceptable.
Wood flooring comes in a number of
types. The two major types are: square blocks known as parquet
flooring, and flooring that is in strips of various lengths known
as strip flooring. A good way to determine if the floor is well
laid and tight is to walk over it slowly to make sure that there
are no places where there is noticeable give under foot. If so,
that part of the floor should be corrected.
Some new houses today may have
concrete floors covered with asphalt tile or wood flooring. When
asphalt tile is used, you should be able to tell readily whether
the flooring is well laid and tight. It is particularly important
that the joints be smooth.
Kitchen floors will usually be
either linoleum or asphalt tile, and the bathroom floor will
usually be either linoleum, asphalt tile, or ceramic tile. You
should inspect these floors to see that the material has been laid
in a workmanlike manner
The asphalt tile or linoleum should
be properly fitted around the corners and fixtures. If there
should be cracked or chipped pieces, then you should require that
these be corrected, because water will get down in these places
and work its way under the asphalt tile or linoleum and loosen it
from the floor, and you will have a poor floor.
Doors
Take a good look at the front and
rear doors, opening and closing them several times to see that
they fit well. Large cracks can cause trouble although some
clearance around the door is necessary. While examining the doors,
also look at the threshold, which is the separate piece installed
under the door and fastened to the floor. This threshold or bottom
piece should work in combination with the bottom weatherstripping
so as to keep out wind and rain.
Inspect all of the interior doors
also. Make sure they all close and latch properly and are not
warped out of shape. Look at the finish of all doors to make sure
that the builder has painted or varnished them so that they will
be protected against moisture.
Ceilings and Walls
Inspect the walls to see that they
are of the material that you expected. There are two main types of
inside wall finishes, known as "dry wall" and
"plastered wall." The "dry wall" can be of
plywood, gypsum wallboard, or fiberboard that is placed on the
walls and taped and then painted or papered; this provides a good
finish that is very serviceable.
The "plastered wall" is
constructed of lath and plaster. Experience has shown that both
types of wall are satisfactory if properly finished. The walls may
be painted or papered, and you should inspect the finish to see
that it meets with your approval.
Most of the paint used in
structures built in 1950 or earlier contained significant amounts
of lead. Leadbased paint has been determined to be a health hazard
to children who might eat chips from the paint. Before you decide
to buy any older house which has cracking, peeling, scaling or
loose paint, you should insist upon arrangements being made to
properly treat such surfaces so that the paint is removed or
covered.
Some homes built between 1945 and
1978 may contain a crumbly, asbestos-containing material which has
been either sprayed or troweled onto the ceiling or walls. If the
material is in good condition, it is best to leave it alone. If
the material appears damaged you may want to consider having it
repaired or removed. In order to be a health risk, asbestos fibers
must be released from the material and be present in the air for
people to breathe. Before you decide to buy, this additional
potential health risk should be given careful consideration.
Electrical Outlets
While looking at the walls, take
time to note the electrical outlets, their locations, and if there
are enough of them to meet your needs. The wall switches should be
placed so you can reach them when you open the door. Make sure you
have sufficient power circuits to run whatever appliances or
equipment your family intends to use. Remember that some older
houses were not originally wired to take care of the many
electrical appliances and the equipment commonly used today.
Windows
Be sure there are enough windows to
give proper light and ventilation and that they are located so
that they will not interfere with your furniture arrangement. Try
opening and closing all windows to see that they operate properly
and especially whether or not they close tightly to keep out the
weather.
If you find the windows in a new
house do not close tightly, ask the builder to correct them before
you move in. If you find the windows painted shut, be sure to have
the builder free them because if you try to do it you might damage
the window as well as ruin the paint.
Does your contract provide for
screens? If not, keep in mind that you may wish to add them later.
The same applies to storm windows and storm doors. If you think
they will be necessary, allow for them in your estimate of total
cost.
Bathrooms
The bathroom should be located near
the bedrooms and preferably so that you don't have to enter
through another room. Inspect the bathroom to see that the towel
bars, soap dishes, and other fixtures that you contracted to get
are installed and that you have a medicine cabinet properly
located.
Examine the location of the wall
switch for the light in the bathroom. Be sure that this switch is
located so that you cannot reach it while standing in the bathtub.
If you can reach the switch easily from the tub, require the
builder to move it, because you or your children can get a severe
or even fatal shock by standing in a tub of water and turning on a
switch.
The lower part of the bathroom wall
is usually covered with ceramic tile, plastic tile, or some other
waterproof material to protect the wall against splashing. Inspect
the tile and bathtub for proper installation and chipping which
may lead to an expensive repair job in a year or two.
Closets
Check on the number and size of
closets. Do they meet the needs of your family? Make sure there is
sufficient room in them for the purpose for which they are in
tended.
Kitchen
When you buy your home, certain
items of equipment for the kitchen may be included in the purchase
price. Make sure of exactly what you are supposed to get, and have
it in writing. Examine these pieces of equipment to make sure that
you have received the make, size, and price range specified, or
the equivalent. For example, do not accept a secondrate range or
refrigerator when you were supposed to get one of the best. Your
sales contract should specify the type and size of kitchen and
laundry equipment to be included in the purchase price. (The same
goes for the water heater and furnace if you buy a new house
before it is completed.)
Heating Unit
If you are not a heating expert you
might ask the question, "What good would it do me to look at
the furnace?" In the case of proposed construction, the
builder will specify the make and the size of the unit, and you
can compare this with the one installed in the house.
There are many types of heating
systems, any of which are satisfactory when of proper capacity for
the house. These will include warm air systems, with ducts and
outlets; hot water pipe and radiator types; and radiant pipe or
panel types--these may be gas, oil, electric, or coalfired. Many
systems have compact units of much smaller size than was true some
years ago. The main concern is that the particular system has
proper capacity for comfort and economy.
Two things you can check are the
"Btuh output" and the calculated "heat loss."
These measure the amount of heat the furnace will give and the
amount of heat needed for the dwelling. If the specifications call
for a "70,000 Btuh output" furnace, do not accept a
furnace marked with any figures less than this, because if you do
you may not be able to heat your home properly or economically. If
the builder has substituted a different make furnace with the same
rating, then be sure the furnace that the builder installed is
equal to or better than the one that should have been put in.
Of course, if you live in a warm
climate, less elaborate heating equipment may suffice.
Furthermore, if you're buying an old house, you'll need expert
advice on whether the heating system will be satisfactory, and
what repairs it may need.
Insulation
If insulation is specified, check
on the insulation in the attic and also see that you have open
louvers (ventilators) in the attic. A louver is a slatted opening
with screen wire on the inside that provides circulation of air,
summer and winter. It is very important that these attic vents or
louvers be left open throughout the year. Occasionally, homeowners
cover up the vent opening to conserve heat or keep out winddriven
rain or snow. Openings should never be left closed up for more
than a very brief time, such as during a severe storm period.
Closing up this ventilation area can produce excessive
condensation, and the resulting moisture may cause rapid
deterioration of parts of the roof, walls, or ceiling.
In basementless houses with crawl
spaces, foundation vent openings are for the same purpose of
providing air circulation. It is important also that these
foundation vents be left open the year round except for very brief
periods of severe storm. Where heavy treated ground cover paper or
roofing has been laid over the entire ground surface in the crawl
space, the need for foundation ventilation is much less. However,
in all cases some ventilation is important not only to prevent
excessive condensation and deterioration of floor construction and
other parts of the house but also to maintain better safety. A
tightly enclosed crawl space without any vents whatsoever could be
a hazard where gasfired or other type of unit heating systems are
located within the crawl space and where sewer pipes are in this
area and could cause small gas pockets if the under floor space is
nearly airtight.
There are a number of types of
insulation which are satisfactory. Foil, fill, slab, or board
types of insulation installed between, over, or under framing
members will be effective when properly used. Check your
specifications and ask questions. If you have a flat roof, the
method of installation will be different from that for sloped
roofs. The important consideration is proper use of the particular
type specified.
Basement
If your house has a basement, look
it over carefully. Concrete floor and walls should have a sound
surface, and if a drain is provided, the floor should have proper
gentle slope toward the drain. A dry basement, which will remain
free of water penetration through walls and floor, is highly
important. Drainage of rainwater by good outside grading and
intercepting drainage swales (lowlying land) to provide drainage
off the lot, including provision for carrying water away from
downspouts and waterproofing of foundation walls, should be in
accordance with specifications.
Damp spots on walls or floor are
not necessarily an indication of leakage. In humid areas,
condensation will take place when inside and outside temperatures
vary. A glass of ice water gives a practical example. Good
ventilation of the basement or brief periods of turning on the
heating system may well eliminate such dampness.
Storage
Check to make sure you have ample
storage space. In houses with no basement, the builder usually
provides for storage in the attic or in the utility room. If the
storage is in the attic, it will take care of things like trunks,
suitcases and the like, but if you have children, don't forget you
will need a place for the baby carriage, tricycles, bicycles, etc.
Sewage Disposal
If you are buying a house that is
located where there are public sewers, you will have little to
worry about. If there are no public sewers, you will probably get
a septic tank. Septic tank systems, if properly installed and
maintained, should give no trouble. Proper maintenance procedures
call for the septic tank to be inspected at least once a year.
With ordinary use and care the tank may need cleaning every 2
years. On new houses, VA will require inspections in most cases to
try to assure that the system is properly installed. On older
properties, you should get advice from your health department or
from people familiar with the neighborhood to find out whether
septic tank systems in the area work properly.
Additional
Notes About "Old" Houses
If you buy an "old" home,
you should be absolutely sure the house is in sound condition. Get
expert advice, if necessary, from some impartial person who has
experience in housing construction. A thorough inspection of the
property by you or a reputable inspection firm may help minimize
any problems that could arise after loan closing. Particular
attention should be given to plumbing, heating, electrical and
roofing components.
If you find some defects in an old
house which the seller agrees to correct, be sure to get a written
agreement specifying what the seller will do before you obligate
yourself to buy.
The time and expense of getting
expert advice is well worthwhile--you don't want to buy a house
with termites, a leaky roof, a wet basement, a poor foundation,
poor lot drainage, a faulty sewage disposal system, an inadequate
water supply system, or defective floors, walls, or ceilings,
without knowing exactly what you're getting into. Extensive
repairs to correct such defects may be very expensive.
If you believe the home you are
buying is in need of storm doors and windows, added insulation or
other energy conservation improvements, it may be possible to
include the amount necessary to cover their cost in your loan.
Check with your lender or the local VA regional office.
Environmental Hazards
The Federal Government is concerned
about potential environmental hazards in and around the home. They
include asbestos, lead, radon, formaldehyde and other chemical
contaminants. For instance, asbestos containing products in the
home sometimes release asbestos fibers. If asbestos fibers are
inhaled, certain types of cancer may later develop. Asbestos in
homes poses several problems. Household members have little or no
protection from exposure to asbestos fibers. Once released, the
asbestos fibers may stay suspended in the air for many hours.
After they settle, fibers can be stirred up again by a household
activity, such as sweeping. During this time, asbestos fibers can
be inhaled. This continued presence could cause an ongoing risk in
the home.
For information about specific
environmental hazards, or indoor air quality and safe drinking
water in general, contact the U.S. Environmental
Protection Agency, Public Information Center, 401 M Street,
S.W., Washington, D.C. 20460.
Checklist
for Use in Buying or Building a Home
The checklist that follows is
offered to aid you in selecting your home, and to remind you of
the principal items that generally should be considered in buying
a home. It does not eliminate the need for reliable, sound advice,
nor does it provide for special considerations arising from cost,
climate, or personal desires and preferences such as style or
architecture or inclusion of fireplace, recreation room, etc. The
list does not cover everything but does include the principal
items which you should consider.
If you want to print this
checklist, click here
to go to a separate document containing it. You can then print it
using the print function of your Web Browser.
CHARACTERISTICS OF PROPERTY
(Proposed or existing construction)
Neigborhood
| Consider each of the following to
determine whether the location of the property will
satisfy your personal needs and preferences: |
Remarks |
| Convenience of public transportation |
___ |
___________________________ |
| Stores conveniently located |
___ |
___________________________ |
| Schools conveniently located |
___ |
___________________________ |
| Absence of excessive traffic noise |
___ |
___________________________ |
| Absence of smoke and unpleasant odors |
___ |
___________________________ |
| Play area available for children |
___ |
___________________________ |
| Fire and police protection provided |
___ |
___________________________ |
| Residential usage safeguarded by adequate zoning |
___ |
___________________________ |
Lot
| Consider each of the following to
determine whether the lot is sufficiently large and
properly improved: |
Remarks |
| Size of front yard satisfactory |
___ |
___________________________ |
| Size of rear and side yards satisfactory |
___ |
___________________________ |
| Walks provide access to front and service entrances |
___ |
___________________________ |
| Drive provides easy access to garage |
___ |
___________________________ |
| Lot appears to drain satisfactorily |
___ |
___________________________ |
| Lawn and planting satisfactory |
___ |
___________________________ |
| Septic tank (if any) in good operating condition |
___ |
___________________________ |
| Well (if any) affording an adequate supply of safe
drinking water |
___ |
___________________________ |
Exterior Detail
| Observe the exterior detail of
neighboring houses and determine whether the house being
considered is as good or better in respect to each of
the following features: |
Remarks |
| Porches |
___ |
___________________________ |
| Terraces |
___ |
___________________________ |
| Garages |
___ |
___________________________ |
| Gutters |
___ |
___________________________ |
| Storm sashes |
___ |
___________________________ |
| Weather stripping |
___ |
___________________________ |
| Screens |
___ |
___________________________ |
Interior Detail
| Consider each of the following to
determine whether the house will afford living
accommodations which are sufficient to the needs and
comfort of your family: |
Remarks |
| Rooms will accommodate desired furniture |
___ |
___________________________ |
| Dining space sufficiently large |
___ |
___________________________ |
| At least one closet in each bedroom |
___ |
___________________________ |
| At least one coat closet and one linen
closet |
___ |
___________________________ |
| Convenient access to bathroom |
___ |
___________________________ |
| Sufficient and convenient storage space
(screens, trunks, boxes, offseason clothes, luggage,
baby carriage, bicycle, wheel toys, etc.) |
___ |
___________________________ |
| Kitchen well arranged and equipped |
___ |
___________________________ |
| Laundry space ample and well located |
___ |
___________________________ |
| Windows provide sufficient light and air |
___ |
___________________________ |
| Sufficient number of electrical outlets |
___ |
___________________________ |
CONDITION OF EXISTING
CONSTRUCTION
Exterior Construction
| The following appear to be in
acceptable condition: |
Remarks |
| Wood porch and steps |
___ |
___________________________ |
| Windows, doors, and screens |
___ |
___________________________ |
| Gutters and wood cornice |
___ |
___________________________ |
| Wood siding |
___ |
___________________________ |
| Mortar joints |
___ |
___________________________ |
| Roofing |
___ |
___________________________ |
| Chimneys |
___ |
___________________________ |
| Paint on exterior woodwork |
___ |
___________________________ |
| CAUTION: Cracking, peeling, scaling and
loose paint on stairs, decks, porches, railings, windows
and doors may contain amounts of lead which are harmful
if eaten by children. Examine these areas carefully. |
Interior Construction
| |
Remarks |
| Plaster is free of excessive cracks |
___ |
___________________________ |
| Plaster is free of stains caused by
leaking roof or sidewalls |
___ |
___________________________ |
| Door locks in operating condition |
___ |
___________________________ |
| Windows move freely |
___ |
___________________________ |
| Fireplace works properly |
___ |
___________________________ |
| Basement is dry and will resist moisture
penetration |
___ |
___________________________ |
| Mechanical equipment and electrical wiring
and switches adequate and in operating condition |
___ |
___________________________ |
| Type of heating equipment suitable |
___ |
___________________________ |
| Adequate insulation in walls, floors,
ceilings and roofs |
___ |
___________________________ |
| NOTE: See
Additional Notes About "Old " Houses. |
| |
| The following appear to be in
acceptable condition: |
Remarks |
| Wood floor finish |
___ |
___________________________ |
| Linoleum floors |
___ |
___________________________ |
| Tile floors-vinyl, asphalt |
___ |
___________________________ |
| Sink top |
___ |
___________________________ |
| Kitchen range |
___ |
___________________________ |
| Bathroom fixtures |
___ |
___________________________ |
| Painting and papering |
___ |
___________________________ |
| Exposed joists and beams |
___ |
___________________________ |
Are You Sure
That the basement will stay dry
after heavy rains?
That proper drainage of the lot is
assured by necessary drainage swales and proper outfall?
That the sewage disposal system is
adequate and in good operating condition?
That the water supply system, if
other than public service, affords an adequate supply of safe
drinking water?
That the foundations are sound?
That there has been no termite or
other insect damage?
You'd better get EXPERT ADVICE on
the condition of existing construction, if you want to be sure the
house is a good buy. An inspection by a reputable inspection firm
may help minimize any problems.
When you have decided to buy, the
builder or seller will usually require a cash deposit (earnest
money) as evidence that you really intend to go through with the
deal. Make sure that when you make a deposit, you get a signed
agreement from the seller to refund your deposit if you are unable
to obtain VA financing, or if the builder and/or seller fails to
go through with his or her part of the agreement. You may also
expect to be requested to agree that if you fail to go through
with your part of the agreement, you will forfeit your deposit.
These clauses are customary and usual in sales agreements. Be sure
that you know the person to whom you are making the payment is
reliable. Some veterans have lost their deposits to persons who
were dishonest or went bankrupt, and VA can usually do little to
help in these cases.
A contract consists of an offer and
an acceptance. Generally, the purchaser initiates the contract by
signing an offer to purchase on a form entitled "Contract of
sale," "Purchase Agreement," "Deposit
Receipt," etc., which is often supplied by the seller's
agent. This document, when completed with all essential terms and
signed by the purchaser, is a formal offer by the purchaser to buy
the property on the stated terms. A contract occurs when the
seller accepts the offer without qualifications or change by
signing the document prior to withdrawal of the offer by the
prospective purchaser. The contract customarily provides for the
purchaser to deposit a sum to be applied to the closing costs or
purchase price. A proper sales contract should contain the
provisions listed below, but bear in mind that this list is by no
means complete. Bear in mind also that the sales contract is a
legal document containing legal terms which are hard for the
average person to understand. Make sure you do understand
everything that is in the contract before you sign. Any of its
provisions may be vital to your interests.
The best way to protect yourself
is to get competent advice from a lawyer in respect to the legal
details and the requirements in your area. VA is not
authorized to perform this service for veterans.
Remember, when the settlement date
arrives, you are committed to the purchase of the property. Thus
the time to decide the terms of sale, raise questions, and
establish fair fees is not at time of settlement, but earlier,
when you negotiate with the seller and providers of settlement
services. By the time of settlement, any changes in settlement
costs and purchase terms may be difficult to negotiate.
Your sales contract should cover
the following points:
- The sales price should be
specified in the contract. For your protection, it is usually
best if the contract states that the sales price is not
subject to change. Some contracts contain a socalled
"escalator" clause which permits the builder to
increase the price because of future cost increases. A
contract without an "escalator" clause may be best
from your point of view, but for many reasons the builder may
not be willing to build without this clause. If the builder
insists upon the clause, you should recognize that it will
give the builder the right to increase the price to you
subject to whatever conditions may be stated in your contract.
A contract containing this clause, however, should also
provide that the purchaser has the option of canceling the
contract and receiving a full refund of the deposit if any
increased price is not acceptable to the buyer.
- The sales contract should state
the amount of cash payment which will be required from you and
the manner of financing the balance. Usually the contract will
require that you arrange to obtain the loan for the balance
due. It should also provide that any cash deposit you make
will be refunded to you if you cannot obtain a VA guaranteed
loan within a stated period of time.
- The sales contract should
include a provision concerning anticipated closing costs and
prepaid items with an understanding as to who is to pay each.
This allows you to anticipate the need for cash at closing and
prevent disputes.
- The contract should require the
seller to transfer the property to you on or before an agreed
date. The contract should also specify your right to withdraw
and get your deposit back if the Property is not transferred
on time.
- In the case of new construction,
the contract should provide that the builder will complete the
home in accordance with definite plans and specifications by a
specified date or within a reasonable time thereafter. The
plans and specifications describe the type of house that will
be built, the dimensions, the type of material which will be
used, and other details.
- Before you sign the contract,
you should review the plans and specifications to which the
contract refers, or have someone do it for you. The average
person is not ordinarily able to understand a set of plans and
specifications or to determine their adequacy, or to judge
later whether the actual construction is being done in
accordance with those plans and specifications. Before you
sign the contract, you would do well to have some trained
person review the plans and specifications for you. If copies
have been filed with VA, VA will do its best to see that the
actual construction conforms to your plans and specifications,
but VA does not actually supervise the construction for you.
You will commonly find that either you or the builder will
want to make a change from the original plans and
specifications as to one detail or another as the building
progresses. Those things are matters to be arranged between
the builder and you. Usually, VA will require that changes be
submitted to VA for approval, but that approval concerns only
whether the change conforms to VA construction requirements or
requires VA to adjust the valuation it has placed on the
property.
- If you do not get a copy of the
plans and specifications before you sign the contract, you
should make sure that you will have the right to look them
over again at any time at a designated place. Normally, the
builder will cooperate in allowing you to examine the plans
and specifications and furnish you a copy. If the contract
identifies the plans and specifications as those filed with
VA.VA retains plans and specifications for a limited period of
time and, upon request, will give you access to them if
available.
- The contract should contain a
provision stating who will be responsible for the property
from the date of the contract to the date the house is
transferred to you. The builder or seller usually takes this
responsibility.
- The construction warrranty
required to be given to veterans acquiring new homes with
VA-guaranteed financing is discussed later.
If the builder is to assume responsibility for the condition
of the property after it is transferred to you, other than
those covered by a construction warranty, it is desirable to
specify the builder's responsibilities in the purchase
contract or in a separate written agreement executed at the
same time. This is discussed further later.
- You should not sign any contract
containing a so-called "safety" or
"escape" clause which enables the builder or seller
to back out of the contract at any time unless you also have
similar rights. However, it is most advisable that your
contract have a provision which will permit you to
withdraw from the contract, if you so desire, with no penalty
to you if the sales price is greater than the reasonable value
of the property as established by VA and the contract is
signed before you receive notice of VA's reasonable value, or
if you should be unable to obtain a VA loan for the amount
stipulated.
- The contract should provide for
appropriate identification of any easily removable and/or
built-in equipment, appliances, or devices which are to be
included with the property.
It should be emphasized again that
these are just some of the things that a prospective homeowner
should be careful about in signing a sales contract. Legal
documents are often complicated and there is no substitute for
competent advice from a lawyer. You may save yourself a lot of
future complications if you get such advice.
After the house is ready and the
financing has been arranged, the lender will set a date for
"settlement" or "closing." Settlement day is
the day when the property officially becomes yours. You will also
remember it as the "papersigning day." It generally
occurs 30 days or more after the contract has been signed. It is a
good idea to have a lawyer attend the closing with you. At this
time the closing agent or attorney delivers closing statements to
the purchaser and the seller. The closer will ask the purchaser to
sign the promissory note, bond, or other evidence of indebtedness,
promising to repay the purchase money loan; and a security
instrument (mortgage or deed of trust) in favor of your lender
which makes the property security for the loan. Be sure you
understand what you are signing. If you do not have a lawyer, the
closer or lender's or title company's representative will help you
with the legal terms. Do not be afraid to ask questions. The
closer will ask the seller to execute a deed to convey title to
the property to the purchaser. When the documents are in order you
will pay the balance of the downpayment, if any, and your share of
the closing costs. After the closing, the closer will record the
deed and mortgage or deed of trust in the local property records.
When recorded, the deed will be mailed to you as grantee and the
security instrument to the lender. The security instrument remains
on record as a lien or claim against the home until your loan has
been paid off.
The promissory note which you will
sign on the settlement day is a negotiable instrument which the
lender may sell, assign or transfer to another investor without
prior notice to you. Such a sale would transfer the lender's right
to repayment of the loan and you might be advised of a change in
the procedures to be followed in making your loan payments.
However your rights and obligations under the security instrument
would remain unchanged as would those of the loan holder.
At settlement you will receive
important papers for your files, such as the builder's warranty
(if you are buying a newly constructed house); receipts for the
payments you make; a copy of the survey, if required, showing the
boundaries of your property, and purchaser's closing statement or
settlement sheets. If title insurance is common in your area, you
may wish to consider purchasing an owner's title policy for your
personal protection.
Your closing statement will show
the amounts you owe for the downpayment, if any, and for other
settlement costs, and any amounts you have already paid. VA
regulations place certain limitations on the fees that may be
charged. In general, you should expect your settlement charges to
include those which were mentioned earlier in
this pamphlet.
Soon after final settlement you
will move into your new home. Before you move in, you should check
the house carefully to be sure that it is in good condition, and
that the builder or seller has completed everything called for in
the contract. For additional information on some of the things you
should look for, see part 2.
If you are buying a new house, you
may make an agreement with the builder to move in before all
outside work is completed. For example, the builder may not be
able to complete the driveway or walks because of cold weather. In
such cases, however, it is important that you have a clear
understandingin writingthat any uncompleted work of this sort will
be completed properly by a specified date or within a reasonable
time thereafter. It is usually desirable to check with your
lender, or with the VA office.
When you first move into a house,
you may have to do a certain amount of touching up, some of which
may be the result of your moving in. After that, if you have a new
house, your maintenance expenses should be very little for the
first 2 or 3 years.
You should obtain from your builder
or seller copies of the manufacturer's warranties on any
mechanical or electrical equipment included in the home (heating
plant, water heater, refrigerator, range, washing machine,
dishwasher, etc.), together with information as to whom to call in
case the equipment needs to be serviced. Read and carry out any
instructions that may be supplied to you on how to use and
maintain each piece of equipment properly.
In general,
once you buy your home you will have to pay for future repairs and
upkeep, such as outside and inside painting and decorating, and
maintenance of the heating system and other equipment. However,
when you buy a new home you will be given a warranty by the
builder. In the warranty, the builder certifies that the dwelling
is constructed in substantial conformity with the plans and
specifications on which VA has based the valuation of your home.
It is effective for 1 year after the date you get title to your
home or move into it, whichever occurs first. If the completion of
any work was delayed by conditions beyond the builder's control;
i.e., concrete walks which could not be installed because of
freezing temperatures, the lyear warranty on such work extends for
1 year from the date of its completion. The warranty applies only
with respect to instances of substantial nonconformity with
approved plans and specifications and only if you give the
warrantor notice of them in writing before the lapse of the
warranty's effective date.
If you buy a new home that is less
than 1 year old, has never been occupied before, and was not
inspected by either VA or FHA during construction, VA will
ordinarily require that the builder provide you with an insured
1-year protection plan on the property. The protection plan must
provide for (a) an insurancebacked warranty against defects caused
by faulty workmanship and/or defective materials during the first
year; (b) an insurancebacked warranty of the wiring, piping and
duct work of the electrical, plumbing, heating, and cooling
systems during the 2nd year; and (c) direct insurance coverage
against structural defects which seriously affect livability from
the 3rd through the 10th year.
If at all possible, you should get
the builder's agreement in writing as to what the builder is
willing to do to correct defects. Many builders of new houses
usually assume responsibility during the first month or two after
you move in for certain items needing correction in new homes.
Some of these items may be: cracks in the masonry work; opening or
spreading of woodwork joints; improper operation of doors,
cabinets, and windows; water leaks at windows or doors; exterior
paint blistering or peeling; settlement of ground around your
foundation; tile in your bathroom or kitchen cracking or pulling
away from the tub or sink; dampness, as distinguished from actual
water, developing in your basement; and excessive floor shrinkage
or swelling.
In all cases where you find flaws
which need attention, you should notify the builder or
manufacturer and allow a reasonable period of time to make any
needed corrections. You should expect friendly cooperation from
the builder and in turn you should take the same attitude. It may
hurt your own interests to ask for any work or repairs to which
you clearly are not entitled, as it may affect the builder's
readiness to do the things to which you are entitled or which may
be of the borderline variety. If you feel that your home has
defects which the builder should take care of, and you have not
received a response to your requests that they be corrected, you
may write in detail about these items to the Loan Guaranty Officer
of the local VA regional office. The VA office will review your
protests and advise you regarding any assistance they are in a
position to give you. Remember, however, that VA is neither
authorized nor permitted to guarantee that you will be completely
satisfied with your home, or that any specific defect will be
corrected.
As an additional safeguard for new
construction, VA may pay or otherwise compensate for the
correction of structural defects seriously affecting livability
which develop within 4 years of the time a home loan is guaranteed
or made. The assistance may be requested in the same manner as
defects reported when a builder has failed to respond to a request
for correction. There is no form to complete and a detailed letter
to the Loan Guaranty Officer of the VA regional office or center
will he efficient.
A frequent problem encountered by
new homeowners is standing water on some part of the lot after a
rainfall or watering. This should ordinarily be resolved by
finished grading which is intended to provide diversion of water
away from the building and from the lot by intercepting the water
into lot line swales (low lying land). Frequently the swales not
only carry the drainage from your property, but also intercept and
carry the drainage from adjacent higher properties. Care must be
exercise in making additional improvements on your property so
that the grading and drainage pattern is not changed or
interrupted by plantings, walls, or other obstructions.
If you buy a house which has been
previously occupied, there is usually no action you can take
against the seller to have defects corrected unless there has been
misrepresentation by the seller. That makes it even more important
to be sure that the house is in proper condition before you buy.
Remember, you are obtaining a loan
from a private lender which must be repaid just as you must repay
any money you borrow. The VA guaranty, which protects the lender
against loss, encourages the lender to make a loan with terms
favorable to the veteran. But if you fail to make the payments,
you may lose your home through foreclosure, and you and your
family would probably lose all the time and money you had invested
in it
Furthermore, if the lender takes a
loss, VA must pay the guaranty to the lender, and the amount paid
by VA must be repaid by you.
It is most important to you that
you make each mortgage payment on the date it is due. If at any
time you are unable to make a payment on schedule, get in touch
with your lender immediately. The lender may be able to help you
avoid getting into Serious difficulties.
If you should decide to sell your
home and the VA loan was made on or after March 1, 1988, you may
not allow someone else to assume that loan or "take over the
payments" without the prior approval of VA or your lender.
Should you fail to obtain this approval, your lender has the right
to declare your entire loan balance due and payable at once and
may foreclose the mortgage and file a claim with VA. You would be
liable to VA for the amount of any claim paid in such a situation.
If you have an older VA loan and do not have to obtain prior
approval for someone t~ assume that loan, you will remain
personally liable for any claim paid in the event of loan default,
unless you obtain a release of liability from VA.
You can sell your property and
avoid future liability: (1) by seeing that your VA loan is paid in
full (either by the Purchaser paying all cash or obtaining his or
her own loan); or (2) by obtaining prior approval from your lender
for the purchaser to assume your VA loan with your release from
liability; or (3) by obtaining a release of liability directly
from VA if you do not have to obtain the prior approval from your
lender for an assumption.
To apply for approval of the
assumption of your VA loan, contact the lender to whom you send
your monthly payments. You will receive the necessary instructions
and forms for you and the purchaser to complete and return to the
lender. If the VA loan is current and the purchaser appears to be
a satisfactory credit risk and agrees to assume your liability to
VA and the lender, then the assumption may be approved.
If the lender believes a
prospective purchaser will not be able to repay your VA loan, you
may appeal this determination to the VA regional office that
processed your VA loan. That office may be able to approve the
assumption. If VA does not approve the assumption, and if you have
been unable to find another purchaser and cannot afford to
continue the payments on the VA loan, then you may apply to VA for
special approval of the assumption. If special approval is
granted, you will remain secondarily liable to VA if a claim is
later paid on your loan.
If your loan was made prior to
March 1, 1988, then you must apply directly to VA for a release of
liability. The process followed by VA will be similar to that
followed by a lender making a decision about the prior approval of
an assumption of a newer loan.
Selling your home and allowing
someone else to assume the VA loan will not permit you to reuse
your benefit. In order to qualify for restoration of your
entitlement so that you may use it to obtain another VA loan, you
must (1) sell your home and have your VA loan paid in full, or (2)
sell your home to an eligible veteran who will assume your VA loan
and substitute his or her own entitlement. Approval of the
assumption of a loan made on or after March 1, 1988, must first be
obtained from the lender, and then VA will process the
substitution of entitlement. VA can process a request for release
of liability and substitution of entitlement on an older loan at
the same time.
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