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VA HOME LOANS
VA, also known as the Department of Veteran Affairs, offers to qualifying current and ex-members of the Armed Forces (to include the Reserves and National Guard) guaranteed mortgages up to 100% of the value of the property they are purchasing. Based upon a person's "eligibility", home loan amounts can be as high as $359,650.
VA guaranteed loans are made by mortgage lenders, such as Sun Nations Mortgage. If the home loan is approved, VA guarantees the loan when it is closed. The guaranty means the lender is protected against loss if you or a later owner fails to repay the VA home loan.
What are VA home mortgage loans?
Explore your mortgage options by financing your home with VA guaranteed loans! Learn what it takes to qualify and maximize your financing potential with VA home mortgages.
Who is eligible for a VA home loan? Why choose a VA home loan for mortgage financing? VA home loans are fixed rate mortgages with terms of either 15 or 30 years. Since the VA guarantees the mortgage, there is no mortgage insurance. However, the VA requires the borrower to pay a funding fee ranging from 0.5% to 3% for the mortgage (this fee is waived for qualifying disabled veterans). In addition, VA home loans are fully assumable by a qualifying borrower. The following are highlights of the VA program: Down payment requirements: Since this mortgage is guaranteed by VA, the minimum down payment required is 0% of the sales price. Veterans are allowed to put money down on the purchase (which subsequently reduces the required funding fee). No cash reserves are required. Income and employment: There are no limitations placed upon income requirements. As for employment, there are no limitations on a specific length of time at a particular job. However, a 2 year history is required, preferably in the same line of work (education can be counted towards this 2 year history if it is for the same profession the borrower is currently in). Eligible properties and occupancy requirements: VA home loans are restricted to single family residences that are new, under construction, or existing (i.e. resale properties), condominiums, and townhomes. Homes located in a PUD (planned urban development) must be approved by VA. Also, mobile homes with a permanent foundation, taxed as real property, and built after June 16, 1976 are eligible. All VA guaranteed properties must be owner-occupied and located in the United States. Closing Costs: VA has created a list of allowable and non-allowable closing costs that may be charged to the home buyer. Non-allowable closing costs generally are referred to as "garbage fees" or "junk fees" and include costs such as the lender's tax service or document preparation fees. Qualifying ratios: VA does not limit a borrower's monthly payment as in the case of many mortgage loan programs. However, a borrower's total debt (proposed monthly payment plus monthly payments towards credit cards, student loans, car payments, and other installment and revolving credit) cannot exceed 41% of their gross monthly income. Mortgage Insurance Premium: VA home loans do not have mortgage insurance premiums. However, the VA does require a funding fee assessed with each VA loan (unless you are a qualifying disabled veteran). Assumability: Yes. The person assuming the loan must credit qualify for the mortgage and the seller is automatically released from liability with the approval of the lender Am I Eligible for a VA Home Loan? VA home loan eligibility is restricted to U.S. service personnel currently on active duty or honorably discharged from the military to include the Army, Nave, Air Force, Marine Corps, Coast Guard, the Reserves and National guard. This applies to anyone who served during wartime or peacetime for the following periods of time: Wartime Peacetime World War II Post-World War II Korean Conflict Post-Korean Conflict Vietnam Era Post Vietnam Period Persian Gulf War The Vietnam Era begins on Feb 28, '61 for individuals who served in the Republic of Vietnam If you enlisted and service began on or BEFORE September 7, 1980 or your were an officer and service began on or BEFORE October 16, 1980 you are eligible if you served honorably for: · 90 days or more, any part of which occurred during wartime or · 181 continuous days or more during peacetime f you enlisted and service began AFTER September 7, 1980 or you were an officer and service began AFTER October 16, 1980, you may be eligible if you served honorably for: · 24 continuous months or more or · the full period for which ordered to active duty, but not less than 90 days (any part during wartime) or 181 continuous days (peacetime) · Member of the National Guard or Reserves for a minimum of 6 years (see below for more information) You may also be determined eligible if you: · were discharged for a service-connected disability, or · were discharged for the convenience of the government after completing at least 20 months of a 2-year enlistment, or · completed not less than 90 days (any part during wartime) or 181 continuous days (peacetime), and · were discharged because of a hardship, or · were determined to have a service-connected compensable disability, or · were discharged or released from active duty for a medical condition which preexisted service and has not been determined to be service-connected, or · received an involuntary discharge or release from active duty for the convenience of the Government as a result of a reduction in force, or · were discharged or released from active duty for a physical or mental condition not characterized as a disability and not the result of misconduct but which did interfere with your performance of duty · are an un-remarried spouse of a veteran who died while in service or from a service connected disability, or · are a spouse of a serviceperson missing in action or a prisoner of war. Active Duty Service Personnel If you are now on active duty, you are eligible after having served on continuous active status for at least 90 days. When an ending date is established for Persian Gulf War service, a minimum of 181 days of continuous active duty will be required for persons who did not have wartime service. Members of the Selected Reserve "Selected Reserve" means the Selected Reserve of the Ready Reserve of any of the Reserve components which consists of units and individuals who participate actively in paid training periods and serve on paid active duty for training each year. This includes Army, Navy, Air Force, Marine Corps, and Coast Guard Reserves as well as Army National Guard and Air National Guard. 6-Year Requirement: A veteran, who is not otherwise eligible, who completes a total of 6 years as a member of the Selected Reserve (need not be ordered to active duty) is eligible if he or she either: · received an honorable discharge · was placed on the retired list · was transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service in the Selected Reserve characterized as honorable · continues to serve in the Selected Reserve. The 6 years service need not be continuous nor in the same Reserve or National Guard unit. However, active duty regular military service cannot be combined with Reserve service to reach the 6 year requirement. Eligibility may also be established for: · certain United States citizens who served in the armed forces of a government allied with the United States in World War II. · individuals with service as members in certain organizations, such as Public Health Service officers, cadets/midshipmen at service academies, officers of National Oceanic and Atmospheric Administration, merchant seamen with WWII service, and others. To obtain your Certificate of Eligibility, click here for instructions. Why Choose a VA Home Loan to Buy a House? As a qualifying veteran for the VA home loan program, the government has afforded you a unique opportunity to purchase a home. However with ever decision, there are pros and cons to this opportunity. Review the following information before deciding if a VA loan is right for you: Why choose a VA home loan: · VA home loans do not require a down payment, unless the purchase price is more than the appraised value or in excess of $240,000. · VA home loans have a negotiable fixed interest rate that is competitive with conventional mortgage financing. · VA home loans have limitations on which closing costs may be assessed to the veteran. · VA home loans have long amortization (repayment) terms · VA home loans may be prepaid without penalty. · VA home loans may have forbearance extended to worthy VA homeowners experiencing temporary financial difficulty · VA home loans do not require mortgage insurance premiums. · The seller may pay ALL of the veteran's closing costs (and with a $0 down payment, the veteran can literally purchase a home for nothing). Negative consequences of VA home loan financing: · VA home loans require the veteran (or the seller) to pay a funding fee. If this fee is wrapped on top of the loan and the veteran finances 100% of the property, the veteran will be "upside down" on the home (meaning he or she owes more than the property is worth). · Higher loan amounts reduce the available equity position of the veteran which could hamper selling the property within the first five years of ownership. In other words, if the veteran had to sell the home, there may not be a margin of equity to cover the closing costs on the sale of the property, any real estate commissions owed to a listing agent, and any other costs associated with the sale of a property. (This does not factor in any appreciation in the value of the home over this period of time). · Co-borrowers are restricted to qualifying veterans and spouses of qualifying veterans only. · The Department of Veteran Affairs will have access to your personal and financial records obtained during the loan process. In the opinion of most people out there, the advantages definitely outweigh the disadvantages of choosing a VA home loan, especially when you can purchase a home for $0 down, have the seller pay for all of your closing costs, and move right in! Whether you are buying your first home or this is your fiftieth, the steps involved in purchasing a home with your VA benefits are the same. It is important to review the entire process before beginning. By doing so will only ensure a smooth and easy home buying transaction for you. Steps involved in using your VA home loan benefits: 1. Determine if you are eligible for VA home loan benefits. This is a two part step that will begin the process. First, talk with a mortgage lender familiar with VA loans in order to see how large of a VA home loan you will qualify for. You should take into consideration not only the price range you desire but also the monthly payment you wish to have. Second, request your Certificate of Eligibility which will determine how much entitlement you have remaining. 2. Find a real estate agent to assist you in buying a home. As mentioned in other sections of the site (click here), find an agent that you feel comfortable working with and an agent that believes he or she works for you (instead of the other way around). Remember, the seller can pay for all of your closing costs so be sure to find an agent that is savvy enough to negotiate this into the contract. 3. Once you have found a property and the seller has agreed to a sales contract, you will need to obtain full VA loan approval. This step may differ upon your choice of lenders but should consist of the following applying for the loan, determining the value of the property with a VA appraisal and Certificate of Reasonable Value, title search, and submission to an underwriter for approval (see the section to the left regarding underwriting). 4. Upon approval, you will go to the title/escrow company to close on the purchase of your home. This is the step where you will sign the mortgage/deed of trust, the note, and other pertinent closing documentation. 5. Upon closing, you should receive the keys to the home and the property legally becomes your own. Though this is a simplified version of the process, it does outline several key points that you need to be aware of: · Find out how much you qualify for before beginning the home search. In this step, you should also be able to identify any potential hurdles that would impede or prevent you from buying a home. · Request your Certificate of Eligibility before beginning the home search process (this could take several weeks to receive and has the potential of delaying the process). · Find an agent that knows how to negotiate! Too many veterans are buying homes for $0 down and NOT paying any closing costs because they have a competent real estate agent working for them. Don't be left out of the crowd. Home Buyer Checklist HUD home buying wish list Before beginning the home buying process, you must remember that as a potential home buyer you are the one in charge--not the real estate agent, not the lender, or the lawyer. More often than not, too many home buyers feel trapped due to a lack of knowledge of the process and rely on the judgment of others without knowing all of the facts and processes involved in home buying. This is especially true when selecting a real estate agent that will walk you through one of the most important transaction of your life. Savvy customers know that they have a right to interview agents to see how they will find and negotiate the sale of a home for them. With the variety of services that agents offer and the varying levels of education that agents can go through, the selection of agents can be immeasurable. As a buyer, it is important to first seek out the services of a buyers agent. This type of agent varies from other agents in the sense that they represent you in the real estate process, not the seller. Often times, a buyer will call the agent listed on a for sale sign outside a property only to find out that when it comes time to negotiating your interests, that agent represents the seller. Find out whom the agent represents. Even though most states require the agent to disclose this fact to the buyer. Be on the look out for agents that practice a form of buyer's representation called "dual agency". Dual agency is when the real estate agent represents both the buyer and the seller and forces the agent to be neutral throughout the negotiating process. Having someone looking our for your interests and offering their expert opinion about price and the condition of a home are invaluable when you consider you are spending anywhere from $100,000 to $200,000 and up. A buyer's agent is contracted by you to represent your interest in the real estate process and has a fiduciary responsibility to do so from the beginning of the home shopping process until the close of escrow. Most buyer's agents do not charge the buyer fees for their services. This is because their commission comes from the seller who has already agreed to pay the buyers agent anywhere from a flat fee up to 4% of the sales price. It is one of those strange but true paradoxes of real estate. Finally, remember that the decision is yours to make. Only you will have to live with that decision because once you have closed upon the home, you will have to live in it and only you will have to make the payments. Buying Considerations when using a VA Home Loans More than 29 million veterans and service personnel are eligible for VA home loan financing. However, before the veteran begins the home buying process, there are several considerations that he or she should take into account: · In most cases, the veteran can finance up to 100% of the sales price and no down payment is required. · The maximum loan amount may not exceed $240,000, the sales price, or the appraised value (as determined by a VA appraiser)...whichever is less. · VA home loans do not require the veteran to pay monthly mortgage insurance · VA limits which closing costs the veteran is allowed to pay. · VA home loans are assumable, subject to VA approval. · Veterans have the right to prepay his or her VA home loan without penalty. · VA requires a funding fee that can range from 0.5% to 3% of the loan amount (excluding disable veterans). · Veterans may be eligible for second or subsequent use of the VA home loan benefits. You may want to review other considerations. Whether selling your home by owner or using the services of a real estate agent, you, the seller, may be presented with an offer from a buyer who has been approved for a VA home loan. Your decision to accept that offer may have an impact upon the net profit from your home. It is important that before you begin the home selling process, you consider all the factors that may impact the profits from the sale of your home. In this section, we are going to look at two of these considerations you need to contemplate before selling your home: VA requirements of sellers and VA closing costs. When it comes to selling a home and the VA buyer, there are usually two steps in the home selling process that most sellers do not consider. First, VA will require to pay all non-allowable closing costs. Second, VA requires a termite inspection to be completed on the home prior to closing. If there is a wood infestation, that additional cost falls upon the shoulders of the seller. Sellers want to know how a VA home loan will impact the net proceeds of the sale of their home. If the buyer plans on purchasing the home with a VA loan, you will have additional costs that are not normally considered "seller's closing costs". To view a list of these costs, click here. Generally speaking, these costs will not have a major impact upon your bottom line, but it is important to have the buyer's lender give you these costs before signing the contract. Not doing so could result in a rude awakening when you close on the property and you will realize that all of your supposed profits went towards helping the buyer get into your home. However, it is important to also mention that if you do have a VA buyer, you are allowed to pay all of the buyer's closing costs as well. This may be an attractive enticement for potential buyers if they know they can buy your home with no out of pocket expenses (VA loans require $0 down). VA generally requires a termite inspection on all of their properties they insure. If you suspect termites, it might be beneficial to have a termite inspection done on the home prior to selling it and if any infestation is found, fix it (this becomes a fact that you will have to disclose to the buyer before purchase anyways, so you might as well get it out of the way). Finally, before putting your home on the market, make sure that all of the necessary "major" repairs have been completed on the home. Go through the home and have the air conditioning serviced or faulty light switches replaced. If you don't feel qualified to do so, hire a local home inspection company to inspect your property in order to find any faults or defects with the home. If you hire a contractor to complete the repairs on the home, it is best that you bid out the repairs and do not use the same company that conducted the home inspection. Often times the home owner will be charged for needless and non-existent problems of the home. As a seller that has an existing VA home loan on your property, you may wonder about the feasibility and possibility of having a buyer purchase the home and assume the current VA home loan. Before you rush out and sign a contract, there are several considerations that you need to take into account. You may sell the property to a veteran or a non-veteran at any time. However, if the VA home loan was closed after March 1, 1988, and it will be assumed by the buyer, the qualifications of the assumer must be reviewed and approved by the lender or VA. Prior to March 1, 1988, VA home loans could be assumed by anyone. With newer VA loans, the buyer generally has to be a qualifying veteran in order to assume the mortgage. You should contact your current lender for more information on the requirements on assuming your current VA home loan. It is important to mention that just because someone assumes your VA home loan, you are not necessarily off of the hook. If the loan was closed after March 1, 1988, the lender or VA must be notified and requested to approve the assumer and grant the veteran release from liability. If the loan was closed prior to March 1, 1988, the loan may be assumed without approval from VA or the lender. However, the veteran is strongly encouraged to request a release of liability from VA in order to avoid owing a debt to the Government if the loan assumer (or a subsequent assumer) fails to pay the loan. However, a release of liability does not necessarily restore your entitlement. The assumer must not only qualify from a credit and income standpoint, but he or she must have sufficient entitlement AND agree to substitute it for that used by the original veteran in obtaining the loan and meet occupancy requirements, It is not recommended to allow a non-qualifying buyer to "assume" your mortgage by making the payments for you. In this type of transaction, the buyer pays the seller the difference between the sales price and the remaining mortgage (also known as the Cash-to-Mortgage) and pays the title/escrow company which in turn pays the lender for the seller. Though many sellers are duped into believing that they are released from any potential liability, the reality is they are putting their credit history in the control of someone who does not qualify for a loan AND gives title of the property over to this person thus putting themselves into a position of maximum risk with no collateral should the buyer default on payments. In the end, you could be the one that owes the government for a loss, have your credit history destroyed by someone else, possibly be sued for liability while the buyer only looses his or her initial down payment to you. A VA Interest Reduction Refinance Loan (also know as a VA IRRRL) is a streamline refinance which that requires little documentation, no appraisal, and a reduction in the interest rate on the VA home loan. VA interest rate reduction refinances do not require credit underwriting and the mortgage loan must be current. The following are basic requirements of a VA interest rate reduction refinance: · The mortgage to be refinanced must already be a VA home loan · The borrower must have been making the mortgage payments on time · The refinance must lower the interest rate as compared to the previous VA home loan · The borrower may not receive cash from loan proceeds · Any subordinate financing may remain in place as long as it is subordinated on title. · The borrower must have owned the property and had the VA mortgage for at least six months to be eligible (does not need to be owner occupied). · The term of the new mortgage cannot be any greater than the term of the existing VA home loan plus 10 years and not to exceed 30 years plus 32 days. · An appraisal is not required unless the closing costs are wrapped into the loan. IRRRL refinances are limited to the balance owing on the current VA home loan, closing costs and funding fee (0.5%). · No termite report is required · The borrower cannot be late, delinquent, or in default of any federal debt. · The borrower cannot receive any cash back from the transaction. · If the veteran whose entitlement was used to obtain the existing VA loan has died, regardless of the cause of death, and the veteran's surviving spouse was a co-obligor, the surviving spouse is considered a veteran for the purpose of refinancing under this program. The surviving spouse must own the property to be refinanced. · All parties on the original loan must be on the new VA home loan Cash-out refinances on properties owned more than one year prior to the refinance are permitted on owner occupied principal residences only, and are limited to 90% of the appraised value plus the allowable closing costs. A cash-out refinance is when a borrower refinances their current mortgage for more than they owe in order to pull out the built up equity that has accrued in the home. The amount a home owner can borrower is limited by the value of the property compared to the loan amount (otherwise known as the loan-to-value or LTV). The following are basic requirements of a cash-out VA refinance loan: o If the property was purchased less than one year preceding the refinance, the borrower is allowed to refinance up to 90% of the original sales price plus the allowable new closing costs or the appraised value plus the allowable closing costs (whichever is lesser) o If the property was purchased more than one year preceding the refinance, the borrower can cash-out 90% of the the appraised value plus the allowable closing costs o Applies to owner occupied properties only o 2nd mortgages may be paid off with the cash-out refinance (the second mortgage must be at least 12 months old) o Loan amounts may not exceed 90% of the appraised value or $240,000 whichever is less. o The borrower must have sufficient entitlement for the loan (not including any existing entitlement that was used for loans to be paid off by the refinance o There must be a first lien against the property o If the new loan is to refinance an existing mortgage to buy out an ex-spouse's equity, a divorce decree or settlement agreement must be provided to document the equity awarded to the ex-spouse o All borrowers must credit qualify o A funding fee of 3.00% will be added to the loan amount at time of closing (there are no refunds for previous funding fees assessed by the VA). o Borrower may receive cash proceeds at closing o Maximum loan term is 30 years plus 32 days VA Home Loans Frequently Asked Questions (FAQ) Is VA financing complicated? How do I get a Certificate of Eligibility? What can a veteran do who has lost his or her original discharge papers and does not have a legible copy? Does a veteran's home loan entitlement expire? How much entitlement does each veteran have? Does VA home loan entitlement provide cash to the veteran? Can a veteran get used entitlement back to use again? · The property has been sold and the loan has been paid in full, or · A qualified veteran-transferee (buyer) must agree to assume the outstanding balance on the loan and agree to "substitute" his or her entitlement for the same amount of entitlement you originally used to get the loan. The buyer must also meet the occupancy and income and credit requirements of the law. · ONE TIME ONLY if you have repaid the prior VA home loan in full, but have not disposed of the property securing that loan, the entitlement you used in connection with that loan may be restored. Restoration of entitlement is not automatic. You must apply for it by completing and returning VA Form 26-1880 to any VA regional office or center. Application forms for substitution of entitlement may he requested from the VA office that guaranteed the loan. If the requirements for restoration cannot be met, is there any other way a veteran can obtain another VA home loan? Most lenders require that a combination of the guaranty entitlement and any cash down payment must equal at least 25 percent of the reasonable value or sales price of the property, whichever is less. Thus, in the example, the veteran's $23,500 remaining entitlement would probably meet a lender's minimum guaranty requirement for a no down payment loan to buy a property valued at, and selling for, $94,000. The veteran could also combine a down payment with the remaining entitlement for a larger loan amount. May several veterans use their entitlement to acquire property together? If both a husband and wife are eligible, may they acquire property jointly and so increase the amount which may be guaranteed? Does the issuance of a certificate of eligibility guarantee approval of a VA home loan? How much is the guaranty? Is $36,000 the biggest loan a veteran can get? What is the maximum VA home loan? Is a guaranteed loan a gift? Does VA make any loan directly to eligible veterans? Can a veteran get a VA home loan to pay off the mortgage or other liens of record on his or her home? a. To pay off the mortgage and/or other liens of record on the home. In most cases, the loan may not exceed 90 percent of the reasonable value of the property as determined by an appraisal, plus the funding fee, if required. The loan may include funds for any purpose which is acceptable to the lender, plus closing costs, including a reasonable number of discount points. A veteran must have available home loan entitlement. An existing loan on a manufactured home (except as noted below) may not be refinanced with a VA guaranteed loan. b. To refinance an existing VA home loan to obtain a lower interest rate. Use of additional loan entitlement is not required. The loan amount is limited to the balance of the old loan plus the closing costs, discount points, funding fee, and up to $6,000 in energy efficient improvements. An existing VA home loan on a manufactured home may be refinanced to obtain a lower interest rate. Can a veteran get a VA business loan? Can a veteran get a VA home loan to buy or construct a residential property containing more than one family unit? In addition, if the veteran must depend on rental income from the property to qualify for the loan, the veteran must (a) show that he or she has the background or qualifications to be successful as a landlord, and (b) have enough cash reserves to make the loan payments for at least 6 months without help from the rental income. Can a veteran obtain a VA home loan for the purchase of property in a foreign country? Can a veteran obtain a loan from a private lender in one State for the purchase of property in another State? May a lender require security from the veteran in addition to the property being purchased? If a lender is unwilling to accept a veteran's application for a loan, what should the veteran do? May a veteran pay off a VA home loan before it becomes due? If a veteran dies before the loan is paid off, will the VA guaranty pay off the balance of the loan? Will the veteran's payments always be paid to the same company? You can download the following forms from the Department of Veteran Affairs by using the links listed below. Most of these forms are in the Adobe Acrobat Format (PDF) and require the Adobe Acrobat Reader Version 3 or later. You can download and install a free copy of this program by clicking here Your Certificate of Eligibility is a document issued by the Department of Veteran Affairs that determines 1) if you are eligible for a VA home loan and 2) how much entitlement you have remaining. The current amount of entitlement available to each eligible veteran is $36,000. This was much lower in years past and has been increased over time by changes in the law. For example, a veteran who obtained a $25,000 loan in 1974 would have used $12,500 guaranty entitlement, the maximum then available. Even if that loan is not paid off, the veteran could use the $23,500 difference between the $12,500 entitlement originally used and the current maximum of $36,000 to buy another home with VA financing. An additional $14,750, up to a maximum entitlement of $50,750 is available for loans above $144,000 to purchase or construct a home. Most lenders require that a combination of the guaranty entitlement and any cash down payment must equal at least 25 percent of the reasonable value or sales price of the property, whichever is less. Thus, in the example, the veteran's $23,500 remaining entitlement would probably meet a lender's minimum guaranty requirement for a no down payment loan to buy a property valued at and selling for $94,000. The veteran could also combine a down payment with the remaining entitlement for a larger loan amount. To request a certificate from VA, you must: · complete VA Form 26-1880, Request for a Certificate of Eligibility for VA Home Loan Benefits · Since there is no uniform document similar to the DD214 for proof of service in the Selected Reserve, a number of different forms may be accepted as documentation of service in the Selected Reserve. For those who served in the Army or Air National Guard and were discharged after at least 6 years of such service, NGB Form 22 may be sufficient. Those who served in the Army, Navy, Air Force, Marine Corps or Coast Guard Reserves may need to rely on a variety of forms that document at least 6 years of participation in paid training periods or paid active duty for training. Often it will be necessary to submit a combination of documents such as an Honorable Discharge certificate together with a Retirement Points Statement. It is the reservist’s responsibility to obtain and submit documentation of 6 years of honorable service. In addition, if you are now on active duty and have not been previously discharged from active duty service, you must submit a statement of service which includes the name of the issuing authority (base or command), and is signed by or at the direction of an appropriate official. The statement must identify you and your social security number, and provide your date of entry on active duty and the duration of any lost time. . The completed VA Form 26-1880 along with the DD214 or other proof of military service should be sent to one of the VA Eligibility Centers. A veteran who has previously used his/her loan guaranty benefits may apply for the restoration of these benefits if · the home has been sold and · the loan is now paid in full or assumed by a veteran who has entitlement to substitute for the amount of entitlement originally used on the loan. · on a one-time only basis, the veteran still owns the property but the loan is now paid in full. To apply for restoration of entitlement, submit a VA Form 26-1880 and the Original Certificate of Eligibility. It would be advisable to submit a copy of the HUD-1, Closing Statement, or other appropriate evidence of payment in full. VA Eligibility Centers: If you live in one of the following states: Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Idaho, Illinois, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wisconsin or Wyoming Mail your VA Form 26-1880 and proof of military service to: Los Angeles Eligibility Center Credit Guidelines for VA Home Loans When analyzing a borrower's credit report, it is important to focus upon the general pattern of credit behavior rather than isolated occurrences of late payments. Often times, people will experience a period of financial difficulty in the past and does not necessarily translate into an unacceptable risk. Reasonable explanations of the credit derogatory and evidence of offsetting factors (such as a new job or promotion with greater stability and pay, for example) will be necessary. All derogatory credit information must be explained, in writing, by the borrower.
Wondering if you qualify for a VA home loan? Look no further than here to see if you are eligible for VA
mortgages.
Many have often wondered about the advantages and disadvantages of VA guaranteed financing. Learn about them here.
How to obtain your Certificate of Eligibility
Are you ready to begin house hunting but do not know how or where to obtain your certificate of eligibility? Find out how in this section.
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Sep 16, '40 to Jul 25, '47
Jul 26, '47 to Jun 26, '50
Jun 27, '50 to Jan 31, '55
Feb 1, '55 to Aug 4, '64
Aug 5, '64 to May 7, '75
May 8, '75 to Aug 1, '90
Aug 2, '90 to undetermined
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How to Buy a House with a VA Home Loan
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Whether buying your first home or your third, being prepared before buying a house is crucial to the home buying process. The Department of Housing and Urban Development has created a "wish list" to assist you when beginning the home buying process. It can be downloaded by clicking the link below.
Once you begin narrowing down your selections, use HUD's home-shopping checklist to compare the homes on your list. It can be downloaded by clicking the link below.
Click here to find an agent
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VA Home Loans and Selling Considerations
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VA Interest Rate Reduction Refinance Loans
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How do I apply for a VA guaranteed loan?
You can apply for a VA home loan at any mortgage company that participates in the VA home loan program. For example, if you are buying a home in Arizona, you can call Sun Nations Mortgage, Inc. for more information on qualify or apply online. Click here for more information.
Years ago, VA financing was more complicated than conventional financing. However changes over the years have streamlined the VA home loan process and in many cases, VA home loans are easier than conventional financing.
You can visit the section on VA Eligibility by clicking here.
I have already received one VA home loan. Can I get another one?
Yes, depending on the circumstances. If you have paid off your prior VA home loan and disposed of the property, you can have your entitlement restored for additional use. To obtain restoration of entitlement, click here for more information.
I have sold the property I obtained with my prior VA home loan on assumption. Why can't I get my entitlement restored to purchase a new home?
In this case your entitlement can only be restored if the assumer is also an eligible veteran who is willing to substitute his or her entitlement for that of your original entitlement. Otherwise you cannot have your entitlement restored until the assumer has paid off the VA home loan.
The veteran should obtain a Certificate in Lieu of Lost or Destroyed Discharge. Any VA Veterans Benefits Counselor at the nearest VA office will assist a veteran in obtaining necessary proof of military service.
No. Home loan entitlement is generally good until used. However, the eligibility of service personnel is only available so long as they remain on active duty. If they are discharged or released from active duty before using their entitlement, a new determination of their eligibility must be made, based on the length of service and the type of discharge received.
Originally, the maximum entitlement available was $2,000; however, legislation enacted since that time has provided veterans with increases in entitlement up to the present maximum of $36,000 (or up to $50,750 for certain loans over $144,000). The $36,000 may, however, be reduced if entitlement has been used before to get a VA home loan. The amount of remaining entitlement can be determined by subtracting the amount of entitlement used from the current maximum available entitlement of $36,000.
No. The amount of entitlement relates only to the amount VA will guarantee the lender against loss.
If you have used all or part of your entitlement, you can get that entitlement back to purchase another home if the following conditions for "restoration" are met:
Yes. Veterans who had a VA home loan before may still have "remaining entitlement" to use for another VA home loan. The current amount of entitlement available to each eligible veteran is $36,000 ($50,750) for certain loans over $144,000). 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.
Yes. The guaranty is based on each veteran s interest in the property, but the guaranty on the loan may not exceed the lesser of 40 percent of the loan amount or $36,000 ($50,750 for certain loans over $144,000).
They may acquire property jointly, but the amount of guaranty on the loan may no exceed the lesser of 40 percent of the loan amount or $36,000 ($50,750 for certain loans over $144,000).
No. The veteran must still be found to be qualified for the loan from an income and credit standpoint.
VA will guarantee up to 50 percent of a home loan up to $45,000. For loans between $45,000 and $144,000, the minimum guaranty amount is $22,500, with a maximum guaranty, of up to 40 percent of the loan up to $36,000, subject to the amount of entitlement a veteran has available. For loans of more than $144,000 made for the purchase or construction of a home or to purchase a residential unit in a condominium or to refinance an existing VA guaranteed loan for interest rate reduction, the maximum guaranty is 25 percent up to $60,000.
No. You may generally borrow up to the reasonable value of the property or the purchase price, whichever is less, plus the funding fee, if required. For certain refinancing loans, the maximum loan is limited to 90 percent of the value of the property, plus the funding fee, if required. To determine the reasonable value, VA requires an appraisal of the property.
Although there is no maximum VA home loan (limited only by the reasonable value or the purchase price), lenders generally limit the maximum VA home loan to $240,000 because most VA home loans are sold in the secondary market, which limits VA home loans to that amount.
No. It 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 agreed to make, 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. If the lender does take a loss, VA must pay the guaranty to the lender, and the amount paid by VA must be repaid by you. If your loan closed on or after January 1, 1990, you will owe the Government in the event of a default only if there was fraud, misrepresentation, or bad faith on your part.
Yes, but only to Native Americans on trust land or to supplement a grant to get a specially adapted home for certain eligible veterans who have a permanent and total service-connected disability(ies).
Yes. The following refinancing loans are available under the VA guaranteed home loan program:
No. but business loans may be obtained through the SBA (Small Business Administration). The SBA gives preference to veterans wishing to obtain small business assistance. For more information on this financing, consult your telephone directory for the SBA office nearest you.
Yes, but the total number of separate units cannot be more than four if one veteran is buying. If more than one veteran is buying, then one additional family unit may be added to the basic four for each veteran participating; thus, one veteran could buy four units; two veterans, six units; three veterans, seven units, etc.
No. The property must be located in the United States, its territories, or possessions. The latter consist of Puerto Rico, Guam, Virgin Islands, American Samoa and Northern Mariana Islands.
Yes. However, many lenders limit their lending operations to certain areas.
Yes. This is a matter between the veteran and the lender. While VA does not require that · VA home loans may have forbearance extended to worthy VA homeowners experiencing temporary financial difficulty
The veteran should see another lender. The fact that one lender is not interested in making the loan the veteran wants does not mean that other lenders will not make the loan.
Yes. A VA home loan may be partially or fully paid at any time without penalty. Partial payments may not be less than I monthly installment or $100, whichever is less. (Consult your lender.)
No. The surviving spouse or other co borrower must continue to make the payments. If there is no co borrower, the loan becomes the obligation of the veteran's estate. Protection against this may be obtained through mortgage life insurance, which must be purchased from private insurance sources.
No. It is common practice in the mortgage lending industry to sell mortgages, often before the first payment is even due. If your loan is sold, you may find that you sent your first payment to the wrong place and the new holder of your loan may send you an overdue notice. Even though you know you made the payment, and is is up to the two lenders to get it straightened out, do not ignore the notice. (Most lenders will notify the veteran if the loan is sold and help straighten out any problems.)
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VA and VA Related Forms:VA Form 26-1880 Request for Certificate of Eligibility
VA Form 26-8937 Verification of VA Benefit-Related Indebtedness
SF 180 Request Pertaining to Military Records
(the above is a link to the National Personnel Records Center and is the form you need to request a copy of your DD214 / Discharge paperwork)
How do I obtain my certificate of eligibility?
You can also complete your request online at: https://vip.vba.va.gov
If you were separated after January 1, 1950, you should submit DD Form 214, Certificate of Release or Discharge from Active Duty. If you were discharged after October 1, 1979, DD Form 214, copy 4, should be included.
P.O. Box 240097
Los Angeles, CA 90024
Toll free number: 1-888-487-1970
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VA requires a borrower to demonstrate a good to excellent repayment history of all debts. This history serves as the most useful guide in determining a borrower's willingness to repay credit obligations and serves as a model in predicting his/her future actions.
A borrower who has made payments on previous or current credit obligations (such as a credit card, student loan, etc.) in a timely manner represent a reduced risk to VA. Conversely, if the credit history, despite sufficient income to support these debts, continuously reflects slow or often late payments, judgments and delinquent credit accounts, strong offsetting factors will be necessary to approve the loan.
The Following is a brief synopsis of the credit underwriting guidelines for VA home loans:
· Lack of credit history: If a borrower does not have a minimum of 2 trade lines on their credit report, alternative forms of credit may be used. This would include items such as auto insurance payment history, utility bills, etc.
· Included credit obligations: Any installment loan (e.g. student loans, car loans, etc.) with less than 10 months remaining does not need to be included when qualifying for a VA home loan. However, consideration is given to a large debt of over $100 a month, regardless of the number of months remaining. Furthermore, payments on auto leases with less than 10 months must be included in the qualifying ratios. The minimum payment on all revolving accounts (i.e. credit cards) is also factored in. If the borrower has an open revolving account without a balance, $10 per open account should be included when qualifying. Any loan where the borrower has co-signed for another party is included with their debts unless the borrower can prove that the the other party has made the payments on their own for a minimum of 12 months.
· Chapter 7 Bankruptcy: VA requires a minimum of 2 years since the discharge of the bankruptcy. An explanation of the bankruptcy will be required. Furthermore, the borrower should have re-established credit (i.e. secured credit card) with no late payments.
· Chapter 13 Bankruptcy: VA will consider a borrower still paying on a Chapter 13 bankruptcy if the payments to the court have been made for a minimum of 1 year in a satisfactory manner (as verified with the courts) and with the approval of the court trustee.
· Federal Debts: A borrower is not eligible for a VA loan if he/she is delinquent or in default on any federal debt (such as a HUD or VA mortgage, student loans, SBA loans or a tax lien against his/her property). Borrowers can become eligible by bringing any delinquent accounts current, making satisfactory repayment arrangements with the creditor (generally a 3 month history will be required), or paying the account in full.
· Judgments: Judgments must be paid in full prior to closing.
· Collection Accounts: If a collection account is minor in nature ($100 or less), it generally does not have to be paid off as a condition of loan approval. This may vary from region to region.
· Foreclosure: A borrower who has had a property foreclosed upon, or who has given a deed-in-lieu of foreclosure within the previous 3 years, is generally not eligible for a VA home loan. However, if it was the result of extenuating circumstances beyond the borrower's control (such as the death of a spouse, loss of employment, or serious long-term illness, etc.) and the borrower has since re-established good credit, an exception may be granted. However, extenuating circumstances do not include the inability to sell a house when transferring from one area to another. If the foreclosure was on a VA guaranteed property using the borrower's entitlement, VA may limit the maximum amount loaned to the borrower.
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Income Guidelines for a VA Home Loan
VA requires a borrower to have sufficient and adequate income to cover the repayment of the mortgage. Before a borrower can be approved for a VA home loan, the stability of income and the continuance of the borrower's income must be established through acceptable sources of income, the borrower's past employment record, and the employer's confirmation of continued employment must be established.
Stability of a person's income is generally derived from their employment history. VA requires verification for the previous two full years and must be documented through lender verifications of previous employment or W-2's. This income must be analyzed to determine whether it can be expected to continue through the first 3 years of the mortgage loan (if the borrower intends to retire during this period, the expected retirement income, social security benefits, etc. should be used). Any gaps in employment must be reasonably explained by the borrower. Schooling or education for the borrower's profession (e.g. nursing school) can be counted towards the 2 year requirement. Allowances for seasonal employment, such as is typical in the building trades for example, may be used.
The following is a break down of the different types of income VA considers acceptable:
· Salary / W-2 Income
· Overtime or Bonus Income: Both may be used to qualify the borrower as long as the income has been received for the past two years and is likely to continue. An average of the bonus or overtime income over the last 2 years is used
· Part-time Income: Part-time income (second job) may be used in qualifying if the borrower has a 2 year employment history without interruption. Seasonal employment may be used if the borrower can demonstrate a 2 year history and the probability of continuation. Income from part-time positions that does not meet these requirements should be considered as a compensating factor only
· Commission Income: Commission income must be averaged over the previous 2 years. The borrower must provide his/her last 2 years Federal tax returns (1040's) with all schedules. Any un-reimbursed business expenses must be subtracted from the gross income.
· Retirement / Social Security Income: Verification from the source is required. If the income should expire within 3 years, the income cannot be used to qualify the borrower and used only as a compensating factor
· Alimony, Child Support, or Separate Maintenance: Though not required for qualification, a borrower who chooses to use this income must 1) provide a 12 month payment history from the ex-spouse or courts showing timely payment and 2) provide evidence that such payment will continue for at least 3 years. A copy of the divorce decree, settlement agreement, etc. will be necessary.
· Notes Receivable: A copy of the note and evidence that payments have been received for a minimum of 12 months are required. Should the note expire within 3 years, it can be used as a compensating factor only.
· Interest and Dividends: Interest and dividend income may be used provided documentation (such as tax returns or account statements) supports a 2 year history of receipt. This does not include dividend re-investment plans.
· Rental Income: Rent received from investment properties owned by the borrower may be used, subject to the proper documentation. Income from roommates, etc., in a single-family property to be occupied as the borrower's primary residence is not acceptable. Rental income is calculated by calculating 75% of the gross rents received minus any mortgage payments paid for the property (this may have a positive or a negative effect on a person's income).
· Self-Employed: A borrower with 25% or more ownership interest in a business is considered self-employed. The income from borrower's self-employed less than one year is not acceptable. Borrower must supply the following: 1) personal tax returns for the most recent 2 years (with all schedules), 2) K-1's, 1120's or 1120S's for the last 2 years, financial statements (profit and loss statement and a balance sheet) for the interim and last 2 years, 3) borrower will have to sign an 8821 or 4506 income taxes release form (see lender).
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Compensating Factors for VA Home Loans
When a borrower's payment or combined monthly debt payments is/are higher than the limits prescribe by VA, the loan may be approved with compensating factors. The following are several compensating factors to support borderline loan files:
· Energy efficient dwelling
· Less than 10% increase from old rent/house payment to the new housing expense
· A borrower's excellent savings ability (as shown by savings accounts, IRA's, etc.)
· 3 or months cash reserves (house payments after closing) that are not part of a gift
· Limited use of credit
· Borrower has potential for increased earnings
· Borrower has income that cannot be used as qualifying income
· Larger than minimum down payment
· Showing the effect of the tax savings from homeownership or tax credits for child care.
· 20% or more residual income over the set requirements by VA
· Good credit and steady income are not compensating factors.
VA Closing Costs
Closing costs that may be charged to the buyer are considered "allowable" closing costs per VA. These are buyer costs that are reasonable and customary as determined by VA. All other costs are considered non-allowable are are generally paid by the seller when purchasing a home or the lender when refinancing your current VA mortgage. The following tables gives a break down of these costs:
Allowable
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Non-allowable
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|
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The aforementioned list of VA closing costs is not an all-inclusive list. If you have questions, please refer to your local VA office for clarification. Closing costs cannot be included in the loan amount (except for a refinance).
The seller can pay for all of the buyer's closing costs (up to 4% of the sales price).
Funds to Close for VA Home Loans
The borrower's cash investment in the property must equal the difference between the amount of the VA mortgage, excluding the funding fee, and the total cost to acquire the property (to include prepaid expenses, closing costs, etc.) All funds must be verified from acceptable sources.
Acceptable sources of these funds include:
· Earnest Money Deposit: If the amount of the earnest money deposit exceeds 2% of the sales price or appears excessive based on the borrower's history of accumulating savings, the deposit amount and source of funds must be verified. Otherwise, satisfactory documentation includes a copy of the borrower's canceled check or verification from the bank.
· Savings and Checking Accounts: The lender must verify these accounts. The borrower will need to provide the last three most recent bank statements. If a large increase in deposits is present or the account was recently opened, an explanation and verification of the source of the deposit must be established. Non-sufficient funds, bounced checks, or account overdrafts will need to be reasonably explained.
· Gift Funds: An outright gift is acceptable if it is from: 1) a relative of the borrower, 2) the borrower's employer or labor union, 3) a charitable organization, or 4) a governmental agency or public entity that has a program established to provide homeownership assistance to low and moderate income families. No repayment of the gift may be expected or implied. Furthermore, a gift letter signed by both the donor and the borrower stating the amount of the gift and that repayment is not required, provides the donor's name, address, phone number, and relationship to the borrower will be required. In addition, verification of the transfer of funds from the donor's account to the borrower's account, via copies of the donor's canceled check, for example, and the borrower's deposit slip or bank statement will be necessary.
· Sales Proceeds: Sale of an asset is considered an acceptable source of income if the borrower provides: 1) copy of the bill of sale or HUD-1 Settlement Statement (for the sale of a home), 2) copy of the check or verification of funds transfer from the buyer of the asset to the borrower, and 3) copy of the borrower's deposit slip or bank statement showing the deposit of the funds into the borrower's bank account.
· Rent Credit: If the portion of a borrower's current rental payment is to be used to purchase the property the borrower currently occupies, the borrower will need to provide a copy of the rental/lease agreement showing an option to purchase with the clause stating how much of the rental payment is to be used as a rent credit. If the net rent to the seller is below current market rents, the rent credit may not be acceptable.
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Necessary Documentation for VA Home Loans
Depending on your situation, you will be asked for documentation to support your income, liabilities, and funds to close. This documentation will establish your credibility as a borrower, your ability to repay the VA home loan and your willingness to repay the loan.
The following is a list of documents that will be required by the lender to process your VA mortgage as required by VA:
· One full month's worth of pay stubs
· Last 2 years W-2's (salaried income) and / or last 2 years tax returns with all schedules (commission, dividend, rental income or self-employed borrowers)
· Copy of your DD214
· Copy of your Certificate of Eligibility (if applicable)
· Copies of social security, pension, and/or retirement award letters (if applicable)
· Last three months bank statement for all accounts
· Current statements for all investment accounts
· Documentation to support funds to close
· Explanation for any credit derogatories
· Bankruptcy and discharge paperwork (if applicable)
· Divorce decree and any settlement paperwork (if applicable)
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In order for VA to guarantee the home loan, there is a closing cost assessed by the VA to originate the loan called a funding fee. This fee will vary, depending upon the type of VA loan, whether this is your first time to use your entitlement, if you are a disabled veteran, the down payment and if you served active duty or in the National Guard/Reserves. The following table breaks down the funding fee charged by VA: First time use, purchase of an eligible property Down Payment Active Duty Reserves/NG 0% to 4.99% 2.15% 2.40% 5% to 9.99% 1.50% 1.75% 10% + 1.25% 1.50%
Second time use, purchase of an eligible property Down Payment Active Duty Reserves/NG 0% to 4.99% 3.30% 3.30% 5% to 9.99% 1.50% 1.75% 10% + 1.25% 1.50% Interest Rate Reduction .50% Funding Fee Cash-out Refinance: 3.00% Funding Fee Loan Assumptions .50% The funding fee does not have to be paid by veterans receiving VA compensation for service-connected disabilities, or who but for the receipt of retirement pay would be entitled to receive compensation for service-connected disabilities, or surviving spouses of veterans who died in service or from a service-connected disability
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