Housing: VA Home Loans - Military Housing - Military Times

Housing: VA Home Loans

Service members and veterans who decide to buy or refinance a house are eligible for a home loan guaranty offered by the Veterans Affairs Department.

VA does not make the loans, but rather guarantees them, which minimizes lenders’ risks and reduces their losses in the event of a foreclosure. The money comes from private lenders who volunteer to participate. Because of the guaranty, lenders usually are willing to offer mortgage loans without requiring a down payment.

A VA loan can be used to buy a house, townhouse or condominium; co-op unit; or a mobile home, with some restrictions. VA buyers and lenders can negotiate interest rates. Discount points also are negotiable and can be paid by the buyer or seller.

Generally, VA lenders will lend up to four times the available entitlement without requiring a down payment. Although VA loans generally do not require a down payment, a lender may require one.

Buyers of mobile homes not on a permanent foundation must make a minimum down payment of 5 percent.

VA does not set a maximum loan amount. However, lenders generally will lend qualified veterans up to four times a veteran’s available entitlement. The basic entitlement is $36,000, so a typical ceiling for a loan with no down payment is $144,000 ($36,000 times four).

The maximum entitlement for loans above $144,000 varies by location. It is higher in counties with high median home prices. For example, a qualified veteran wanting to purchase a home in V irginia Beach, Va., could potentially obtain a no-down-payment loan of up to $460,000. In Guam, the loan could potentially be up to $625,500. The 2010 loan limits are online at www.homeloans.va.gov/docs/ 2010_county_loan_limits.pdf.

These maximums are subject to change each year. Changes are typically announced in November and December, effective the following January.

Entitlement

There is no restriction on the number of times VA-backed loans can be obtained, as long as there is enough available entitlement to obtain the loan.

A veteran who bought a home using a VA loan can sell the home, pay off the loan and thus “restore entitlement,” becoming eligible for a new VA loan.

Veterans also can have their entitlement restored without disposing of the property as long as the loan has been paid in full — but they may do this only once.

Eligibility also can be restored if the person buying the home is an eligible veteran who assumes the loan and substitutes his entitlement for that of the veteran who originally bought the home.

Funding fees

VA home loan recipients pay a funding fee similar to user fees or origination fees paid by civilian borrowers, which offset losses when borrowers default. The VA funding fee can be included in the loan amount.

The funding fee for loans with a down payment of less than 5 percent is 2.15 percent or 2.4 percent for those qualifying based on service in the National Guard or reserves. It is lower for those making down payments of 5 percent or more. VA also charges a funding fee to second-time users of the loan program. This “subsequent use” fee is 3.3 percent of the loan amount unless the veteran makes at least a 5 percent down payment, which reduces the fee.

Veterans with service-connected disabilities for which they receive compensation are exempt from funding fees. Also, veterans who are still on active duty, but have been rated as eligible to receive compensation for a service-connected disability, may be entitled to a waiver of funding fees if they wish to close on a loan before leaving the military. Under the laws of some states, disabled veterans also may qualify for a waiver of property taxes.

There is an additional option for those who have VA-guaranteed home loans — the Interest Rate Reduction Refinancing Loan. This generally requires no credit underwriting and is used to lower the interest rate and payment. The funding fee is 0.5 percent. Closing costs, including up to two discount points, can be included in the loan.

Refinancing

Under the Veterans’ Benefits Improvement Act of 2008, signed into law Oct. 10, 2008, qualified veterans can refinance a loan for up to 100 percent of the value of the property. The previous limit was 90 percent of the value. The existing loan can be FHA, conventional or VA. This type of loan does require credit qualifying.

In addition, the maximum loan amount has been raised for these refinancing loans. Previously, the maximum guaranty was limited to $36,000. However, with the new legislation, refinance loans are subject to the same limits for the purchase loan. This will allow more qualified veterans to refinance through VA, to save on interest costs and perhaps avoid foreclosure. Visit www.homeloans.va.gov/ docs/2010_county_loan_limits.pdf.

Another provision of the new legislation extends VA’s authority to guaranty adjustable rate mortgages (ARMs) and Hybrid ARMS through Sept. 30, 2012.

Contact: www.homeloans.va.gov/fact sheet.htm.