VA LOANS
|
OVERVIEW
The Department of Veteran Affairs, formerly known as the Veterans Administration, was established in 1930. The VA was originally established to provide medical benefits for WWI veterans but in 1944 the agency was readjusted to include many of today's entitlements, like education benefits, and VA-guaranteed home loans.
The guarantee means the lender is protected against loss if the veteran or a later owner fails to repay the loan.
|
THE VETERAN
The borrower must be an eligible veteran. A veteran is defined as a person who served in the active military, naval or air force and was discharged from active duty under conditions other than dishonorable. A veteran can be an individual who still is on active duty. An unmarried surviving spouse of a veteran is considered a veteran for certain benefits under title 38, U.S. Code with available entitlement sufficient to meet lender requirements.
|
ADVANTAGES
The VA guaranteed loan remains the finest financing arrangement for owner occupied housing in the world today, offering the home-buying veteran many advantages such as:
- LOW CASH OUTLAY
The 100% loan is a VA exclusive. Under current program provisions it is potentially possible for a veteran with full available entitlement to obtain 100% financing on a loan amount up to (US) $203,000.
- NEGOTIATED INTEREST RATE
The interest rate and discount points to be paid may be determined by veteran, seller and lender. Thus, veterans have the flexibility to negotiate the best possible combination of price, interest rate, and loan costs.
- LIBERAL QUALIFYING GUIDELINES
VA credit underwriting criteria are among the most liberal in the industry.
- LIMITATION ON CLOSING COSTS
Closing costs payable by the veteran are strictly regulated and are generally less in amount than those associated with alternative financing forms.
- NO PREPAYMENT PENALTIES
A guaranteed loan may be prepaid in increments of $100 or more without penalty.
- STREAMLINE REFINANCE
Veterans who use their entitlement to obtain a VA loan when interest rates are relatively high, may refinance when rates decline with little or no out-of-pocket expense in most cases.
- ASSUMABILITY
Although there is a mandatory qualifying process for the assumer, the same liberal qualifying stabdards are used to underwrite assumptions.
- VA SUPPLEMENTAL SERVICING ACTIONS
VA performs default servicing actions supplemental to those of the loan holder to insure that the veteran experiencing temporary financial distress has the opportunity to retain his or her home.
|
LOAN TYPES
VA will guarantee:
- Traditional fixed payment mortgage
- Temporary interest rate buydown loan
- Adjustable rate mortgage
- Loans to refinance both VA and non-VA mortgages
|
Fixed Payment Mortgage Loans
The veteran can get a 100% mortgage loan if entitlement is intact. The VA does not require a downpayment if the purchase price or cost is not more than the reasonable value of the property. If the purchase price or cost is more than the reasonable value then the difference must be paid in cash from the veteran's own funds.
|
Temporary Buydowns
The buydown will be considered a compensating factor only. The loan will be underwritten at one percent above the initial rate as stated in the application. For example, if the initial rate is 6%, and a 3-2-1 buydown brings the first year's interest rate down to 3%, the underwriting will be based on 4%. Again, the buydown will be considered a compensating factor only.
|
Adjustable Rate Mortgage
Increases in the interest rate based on annual adjustments are limited to 1%. The maximum increase in the interest rate over the life of the loan is capped at 5%. VA uses the weekly average yield on Treasury securities adjusted to a constant maturity of one year as the Index.
ARM loan applications will be underwritten at 1% above the initial interest rate.
VA ARM loans are processed similarly to FHA ARMs. This includes use of the Adjustable Rate Mortgage Disclosure Statement and the "rider" amendments to mortgage documents.
|
LOAN PURPOSES
Eligible veterans and service personnel may obtain loans for the following purposes:
- To buy or build a home
- To buy a unit in a condominium project
- To refinance an existing home loan
- To buy a new or used manufactured modular home or manufactured home and lot
- To refinance a loan currently guaranteed, insured or made by the VA for the purpose of lowering the interest rate
- To refinance an ARM currently by VA for the purpose of converting to a fixed rate mortgage
|
LOAN FEATURES
Maximum Loan Amount
The loan amount may not exceed the VA-appraised value of the property, plus the VA funding fee.
In refinancing loans (regular or cash out) the loan is limited to 90% of the VA reasonable value plus Funding fee.
Down Payment
VA does not require a down payment if the purchase price or cost is not more than the appraised value. If the purchase price exceeds the appraised value, the borrower must pay the difference in cash. VA will not permit the veteran to finance more than the appraisal.
Term
VA will accept a loan term up to 30 years but the loan term must not exceed the economic life of the property, as determined by the appraisal.
Rate
Interest rates on VA loans are set by the Lender. There is no maximum on interest rate or discount points.
Closing Costs
No commission or brokerage fees can be charged to a veteran for a VA loan. The veteran can pay reasonable closing costs to the lender and a special VA Funding fee.
The allowable charges vary between different VA offices. A lender must contact the jurisdictional office for the Schedules of Allowable Costs and also Maintenance and Utilities. These are typically the credit report, appraisal, 1% origination fee, survey fee, survey, title exam and recording fees.
|
SELLER CONCESSIONS
Purpose
In some areas reasonable concessions are offered by builders/sellers as a typical competitive tool. However, in extreme instances the builder's contributions may serve to entice unwary and unqualified veterans into home mortgages for which they may be poorly prepared. Such contributions may also disguise the fact that the veteran does not actually qualify for the loan. This circular imposes limits on such seller concessions for VA loan purposes.
Definitions
For VA purposes a seller concession is defined as anything of value added to the transaction by the builder/seller for which the buyer pays no additional amount and which the seller is not customarily expected or required to pay or provide. Such concessions include payment by the seller of the buyer's VA funding fee, prepaid taxes and insurance, gifts such as a televisionset or microwave oven, extra discount points paid to provide permanent interest rate buy downs, escrowed funds paid to provide temporary interest rate buy downs or the payoff of credit balances on behalf of the buyer. (The foregoing list is not intended to be all inclusive).
Excessive Concessions
1. Any concession or combination of seller concessions which exceeds 4% of the established reasonable value of the property will be considered excessive for VA loan purposes.
2. Normal discount points and payment of the buyer's closing costs will not be considered as a concession for purposes of determining if the total concessions are within the established limit.
|
All content copyright (c)1998-2005 Majestic Home Mortgage Corporation, all rights reserved.
To contact Majestic Home Mortgage Corp.:
1-888-310-LOAN
If you have mortgage questions, please e-mail us.
HOME
|
