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The more you know about our
home loan program, the more you will realize how little "red tape"
there really is in getting a VA loan. These loans are often made without
any downpayment at all, and frequently offer lower interest rates than
ordinarily available with other kinds of loans. Aside from the veteran's
certificate of eligibility and the VA-assigned appraisal, the application
process is not much different than any other type of mortgage loan. And
if the lender is approved for automatic processing, as more and more lenders
are now, a buyer's loan can be processed and closed by the lender without
waiting for VA's approval of the credit application.
Additionally, if the lender
is approved under VA's Lender Appraisal Processing Program (LAPP), the
lender may review the appraisal completed by a VA-assigned appraiser and
close the loan on the basis of that review. The LAPP process can further
speed the time to loan closing.
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- Apply for a Certificate
of Eligibility.
A veteran who doesn't have a certificate can obtain one easily by completing
VA
Form 26-1880, Request for a Certificate of Eligibility for VA Home Loan
Benefits and
submitting it to one of our Eligibility
Centers with copies of your most recent discharge or separation
papers covering active military duty since September 16, 1940, which
show active duty dates and type of discharge.
- Decide on a home the buyer
wants to buy and sign a purchase agreement
- Order an appraisal from
VA. (Usually this is done by the lender.)
Most VA regional offices offer a "speed-up" telephone appraisal
system. Call the local VA office for details.
- Apply to a mortgage lender
for the loan.
While the appraisal is being done, the lender (mortgage company, savings
and loan, bank, etc.) can be gathering credit and income information.
If the lender is authorized by VA to do automatic processing, upon receipt
of the VA or LAPP appraised value determination, the loan can be approved
and closed without waiting for VA's review of the credit application.
For loans that must first be approved by VA, the lender will send the
application to the local VA office, which will notify the lender of
its decision.
- Close the loan and the
buyer moves in.
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More than 29 million veterans
and service personnel are eligible for VA financing. Even though many
veterans have already used their loan benefits, it may be possible for
them to buy homes again with VA financing using remaining or restored
loan entitlement.
Before arranging for a new
mortgage to finance a home purchase, veterans should consider some of
the advantages of VA home loans
1. Most important consideration,
no downpayment is required in most cases.
2. Loan maximum may be up
to 100 percent of the VA-established reasonable value of the property.
Due to secondary market requirements, however, loans generally may not
exceed $240,000.
3. Flexibility of negotiating
interest rates with the lender.
4. No monthly mortgage insurance
premium to pay.
5. Limitation on buyer's
closing costs.
6. An appraisal which informs
the buyer of property value.
7. Thirty year loans with
a choice of repayment plans:
a.Traditional fixed payment
(constant principal and interest; increases or decreases may be expected
in property taxes and homeowner's insurance coverage);
b.Graduated Payment Mortgage--GPM (low initial payments which gradually
rise to a level payment starting in the sixth year); and
c.In some areas, Growing Equity Mortgages-GEMs (gradually increasing
payments with all of the increase applied to principal, resulting in an
early payoff of the loan).
8. For most loans for new
houses, construction is inspected at appropriate stages to ensure compliance
with the approved plans, and a 1-year warranty is required from the builder
that the house is built in conformity with the approved plans and specifications.
In those cases where the builder provides an acceptable 10-year warranty
plan, only a final inspection may be required.
9. An assumable mortgage,
subject to VA approval of the assumer's credit.
10. Right to prepay loan
without penalty.
11. VA performs personal
loan servicing and offers financial counseling to help veterans avoid
losing their homes during temporary financial difficulties.
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These loans are made by a
lender, such as a mortgage company, savings and loan or bank. VA's guaranty
on the loan protects the lender against loss if the payments are not made,
and is intended to encourage lenders to offer veterans loans with more
favorable terms. The amount of guaranty on the loan depends on the loan
amount and whether the veteran used some entitlement previously. With
the current maximum guaranty, a veteran who hasn't previously used the
benefit may be able to obtain a VA loan up to $240,000 depending on the
borrower's income level and the appraised value of the property. The local
VA office can provide more details on guaranty and entitlement amounts.
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- To buy a home, including
townhouse or condominium unit in a VA-approved project.
- To build a home.
- To simultaneously purchase
and improve a home.
- To improve a home by installing
energy-related features such as solar heating/cooling systems, water
heaters, insulation, weather-stripping/ caulking, storm windows/doors
or other energy efficient improvements approved by the lender and VA.
These features may be added with the purchase of an existing dwelling
or by refinancing a home owned and occupied by the veteran. A loan can
be increased up to $3,000 based on documented costs or up to $6,000
if the increase in the mortgage payment is offset by the expected reduction
in utility costs. A refinancing loan may not exceed 90 percent of the
appraised value plus the costs of the improvements. Check with a lender
or VA for details.
- To refinance an existing
home loan up to 90 percent of the VA-established reasonable value or
to refinance an existing VA loan to reduce the interest rate.
- To buy a manufactured
home and/or lot.
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Veterans who served on active
duty and were discharged under conditions other than dishonorable, during
World War II and later periods are eligible for VA loan benefits. World
War II (September 16, 1940 to July 25, 1947), Korean conflict (June 27,
1950 to January 31, 1955), and Vietnam era (August 5, 1964 to May 7, 1975)
veterans must have at least 90 days' service. Veterans with service only
during peacetime periods and active duty military personnel must have
had more than 180 days' active service. Veterans of enlisted service which
began after September 7, 1980, or officers with service beginning after
October 16, 1981, must in most cases have served at least 2 years.
Persian Gulf Conflict.
Basically, reservists and National Guard members who were activated on
or after August 2, 1990, served at least 90 days and were discharged honorably
are eligible. VA regional office personnel may assist with eligibility
questions.
Members of the Selected Reserve,
including National Guard, who are not otherwise eligible and who have
completed 6 years of service and have been honorably discharged or have
completed 6 years of service and are still serving may be eligible. The
expanded eligibility for Reserves and National Guard individuals will
expire September 30, 2003. Contact the local VA office to find out what
is needed to establish eligibility. Reservists will pay a slightly higher
funding fee than regular veterans. (See paragraph entitled "Costs
of Obtaining a VA Loan").
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Remaining Entitlement
Veterans who had a VA loan
before may still have "remaining entitlement" to use for another
VA loan. The current amount of entitlement available to each eligible
veteran is $36,000. This was much lower in years past and has been increased
over time by changes in the law. For example, a veteran who obtained a
$25,000 loan in 1974 would have used $12,500 guaranty entitlement, the
maximum then available. Even if that loan is not paid off, the veteran
could use the $23,500 difference between the $12,500 entitlement originally
used and the current maximum of $36,000 to buy another home with VA financing.
An additional $24,000, up to a maximum entitlement of $60,000 is available
for loans above $144,000 to purchase or construct a home.
Most lenders require that
a combination of the guaranty entitlement and any cash downpayment must
equal at least 25 percent of the reasonable value or sales price of the
property, whichever is less. Thus, in the example, the veteran's $23,500
remaining entitlement would probably meet a lender's minimum guaranty
requirement for a no downpayment loan to buy a property valued at and
selling for $94,000. The veteran could also combine a downpayment with
the remaining entitlement for a larger loan amount.
Restoration of Entitlement
Veterans can have previously-used
entitlement "restored" to purchase another home with a VA loan
if:
- The property purchased
with the prior VA loan has been sold and the loan paid in full, or
- A qualified veteran-transferee
(buyer) agrees to assume the VA loan and substitute his or her entitlement
for the same amount of entitlement originally used by the veteran seller.
Remaining entitlement and restoration of entitlement can be requested
through the nearest VA office by completing VA Form 26-1880.
- The entitlement may also
be restored one time only if the veteran has repaid the prior VA loan
in full but has not disposed of the property purchased with the prior
VA loan.
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VA Appraisal- Certificate
of Reasonable Value
The CRV (certificate of reasonable
value) is based on an appraiser's estimate of the value of the property
to be purchased. Because the loan amount may not exceed the CRV, the first
step in getting a VA loan is usually to request an appraisal. Anyone (buyer,
seller, real estate personnel or lender) can request a VA appraisal by
completing VA Form 26-1805, Request for Determination of Reasonable Value.
After completing the form, it can either be mailed to the Loan Guaranty
Division at the nearest VA office for processing or an appraisal can be
requested by telephoning the Loan Guaranty Division for assignment of
an appraiser. The local VA office may be contacted for information concerning
its assignment procedures. The appraiser will send a bill for his or her
services to the requester according to a fee schedule approved by VA.
To simplify things, VA and HUD/FHA (Department of Housing and Urban Development/Federal
Housing Administration) use the same appraisal forms. Also, if the property
was recently appraised under the HUD procedure, under certain limited
circumstances, the HUD conditional commitment can be converted to a VA
CRV. The local VA office can explain how this is done.
It is important to recognize
that while the VA appraisal estimates the value of the property, it is
not an inspection and does not guarantee that the house is free of defects.
Homebuyers should be encouraged to carefully inspect the property themselves,
or to hire a reputable inspection firm to help in this area. VA guarantees
the loan, not the condition of the property.
Application
The application process for
VA financing is no different from any other type of loan. In fact, the
VA application form is the same as that used for HUD/FHA and conventional
loans. The mortgage lender verifies the applicant's income and assets,
and obtains a credit report to see that other obligations are being paid
on time. If all is well and the appraised value of the property is enough
to cover the loan needed, the lender, in most instances, can then close
the loan under VA's automatic procedure. Only about 10 percent of VA loan
applications have to be submitted to a VA office for approval before closing.
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To obtain a VA loan, the
law requires that:
- The applicant must be
an eligible veteran who has available entitlement.
- The loan must be for an
eligible purpose.
- The veteran must occupy
or intend to occupy the property as a home within a reasonable period
of time after closing the loan.
- The veteran must be a
satisfactory credit risk.
- The income of the veteran
and spouse, if any, must be shown to be stable and sufficient to meet
the mortgage payments, cover the costs of owning a home, take care of
other obligations and expenses, and have enough left over for family
support.
An experienced mortgage lender
will be able to discuss specific income and other qualifying requirements.
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Funding Fee
A basic funding fee of 2.0
percent must be paid to VA by all but certain exempt veterans. A down
payment of 5 percent or more will reduce the fee to 1.5 percent and a
10 percent downpayment will reduce it to 1.25 percent.
A funding fee of 2.75 percent
must be paid by all eligible Reserve/National Guard individuals. A down
payment of 5 percent or more will reduce the fee to 2.25 percent and a
10 percent downpayment will reduce it to 2.0 percent.
The funding fee for loans
to refinance an existing VA home loan with a new VA home loan to lower
the existing interest rate is 0.5 percent.
Veterans who are using entitlement
for a second or subsequent time who do not make a downpayment of at least
5 percent are charged a funding fee of 3 percent.
NOTE: For all VA home
loans, the funding fee may be paid in cash or it may be included in the
loan.
Other Closing Costs
Reasonable closing costs
may be charged by the lender. These costs may not be included in the loan.
The following items may be paid by the veteran purchaser, the seller,
or shared. Closing costs may vary among lenders and also throughout the
nation because of differing local laws and customs.
- VA appraisal
- Credit report
- Loan origination fee (usually
1 percent of the loan)
- Discount points
- Title search and title
insurance
- Recording fees
- State and/or local transfer
taxes, if applicable
- Survey
No commissions, brokerage
fees or "buyer broker" fees may be charged to the veteran buyer.
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Veterans seeking more detailed
information concerning the VA home loan program may request VA
Pamphlet 26-4, VA-Guaranteed Home Loans for Veterans, or VA
Pamphlet 26-6, To the Home-Buying Veteran, from the nearest VA office.
Loan Guaranty personnel at that office will also be pleased to answer
specific questions and provide any other assistance they can.
Remember, VA-guaranteed financing
is a benefit which Congress intended eligible veterans should have. If
you are a veteran homebuyer or know of one, it makes sense to look into
the VA loan program as a good way to finance a home purchase.
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