The VA Mortgage Loan: Introduction and Details
VA home loan programs make home ownership much easier, particularly for “first time” home buyers.
- 100% Financing – No Down Payment
- Credit underwriting is much less restrictive.
- Qualifying income ratios are higher than any other loan programs, which means that a veteran can usually obtain a higher loan amount.
- VA underwriting is more understanding of individuals and families who have had to file bankruptcy due to involuntary circumstances.
- If you are an existing homeowner considering a refinance, the VA program allows you to go as high as 90% loan to value.
The veteran buyer cannot pay “lender fees.” The veteran can, and will be obligated to pay all other closing costs. HOWEVER, the veteran’s buyer’s agent can, as part of contract negotiation, request the “seller” to pay all closing costs including pre-paid costs and reserves.
No down payment is required if Veteran has full entitlement. You may be required to put down an earnest money deposit of $500/$1,000 on signing a contract. This can be refunded at closing or offset against closing costs. This is dependent upon contract terms.
Single Family, Veteran-occupied 2-4 units, PUD’s & Condo’s (approved by FHA or VA) proposed or existing construction. Manufactured homes on fixed permanent foundation.
The VA loan must be paid in full and the veteran must have disposed of the property securing the loan – ‘OR’ – the loan must have been assumed by another eligible veteran who assumed the liability on the loan and substituted entitlement.
The VA Funding Fee is a one-time fee charged on a VA Loan in order to limit the overall cost of the VA Loan,
considering the VA Loan requires no down payment and has no monthly mortgage insurance. The VA Funding Fee is non-refundable; however the fee does not have to be paid prior to the closing of the loan and can be financed into the loan, which is what most VA borrowers opt for. The VA Funding Fee is also an allowable seller concession, but it must be factored into the 4% maximum that is allowed for seller concessions.
The VA Funding Fee ranges from 2.15% to 3.3% of the loan amount on purchases and .5% to 3.3% of the loan amount on refinances. The following table breaks down how the VA Funding Fee is determined.
For those with a VA Loan who are refinancing simply to lower their interest rate, the VA Funding Fee is only .5%.
As the table points out, there is a slight difference in the VA Funding Fee depending on whether you were active duty or spent time in the Reserves/National Guard.
Of course, there are scenarios where a borrower is exempt from a VA Funding Fee, and the VA outlines the following as being exempt regardless of a first or subsequent use of a VA Loan:
Veterans receiving VA compensation for service-connected disabilities.
Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay.
Surviving spouses of veterans who died in service or from service-connected disabilities (whether or not such surviving spouses are veterans with their own entitlement and whether or not they are using their own entitlement on the loan.)
Note: The VA Funding Fee can be paid in cash, or it can be added to the loan amount for purchase transactions and all refinances.
Any Veteran or Reservist who has been classified as having a 10% or greater service related disability DOES NOT HAVE TO PAY THE VA FUNDING FEE — EVER.
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 $50,750.
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.
- VA (Veterans Administration) currently insures three types of loan programs. They are:
- 30 Year Fixed Rate
- 15 Year Fixed Rate
- 2/1 Fixed Rate Buy-Down
Any of these programs may be used for both purchasing real estate or refinancing your existing VA loan.
What Can a VA Home Loan be Used For?
- To buy a home, including townhouse or condominium unit in a VA-approved project.
- To simultaneously purchase and improve a home.
To improve a home by installing energy-related features such as solar or heating/cooling systems, water heaters, insulation, weather-stripping/ caulking, storm windows/doors or other energy efficient improvements approved by the lender and VA. These features may be added with the purchase of an existing dwelling or by refinancing a home owned and occupied by the veteran. A loan can be increased up to $3,000 based on documented costs or up to $6,000 if the increase in the mortgage payment is offset by the expected reduction in utility costs. A refinancing loan may not exceed 90 percent of the appraised value plus the costs of the improvements. Check with one of our Loan Agents 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.
VA Streamline Refinance
- NO Appraisal
- NO Credit Underwriting
- NO Qualifying Debt Ratios
- NO Credit Check
- NO Income Verification
- NO Face-to-Face Application
An Interest Rate Reduction Loan or Streamline Refinance allows you to refinance your current mortgage interest rate to a lower rate than you are currently paying. This is only available to veterans who are refinancing their original VA mortgage and utilized their original eligibility.
- No assumptions are allowed.
- VA does not require an appraisal, any income or employment verifications, and no credit report, yet the mortgage must have been paid as agreed for the last twelve (12) months and must be up to date at the time of refinancing.
- This loan can be done with “no out of pocket money” by including all costs in the new loan or by making the new loan at an interest rate high enough to enable the lender to pay the costs.
Pre-Qualify For A VA Home Loan:
What does it mean to pre-qualify?
Pre-qualifying gives you a general idea about your borrowing power. If you pre-qualify for a loan, it means that you have told a lender what your income and assets are, and that based on those statements, you should be able to qualify for a given loan.
Keep in mind that pre-qualifying merely gives you an estimate based upon the information you provide. Pre-qualifying can give you an estimate of how much you can afford in a mortgage payment.
Pre-qualifying for a VA mortgage will help answer these questions:
- How much house can you afford?
- How much income do I need to qualify?