VA Mortgage Loans

March 14, 2011 by · Leave a Comment 

A VA (Veterans Administration) guaranteed home loan is the preferred loan program for active, non-active, Reserve, National Guard, and retired military of the armed forces because there is no down payment needed and no private monthly mortgage insurance required.

VA mortgage loans can be used towards purchasing a home, building a home, or refinancing an existing mortgage.

We will discuss what role the VA plays in a VA guaranteed mortgage, the benefits of a VA home loan, who is eligible for a VA loan, and the documentation you will need to present to your lender in order to apply.

Did you know that more than 27 million veterans and service personnel are eligible for VA financing, yet many aren’t aware it may be possible for them to buy homes again with VA financing using remaining or restored loan entitlement?

VA Does Not Offer Loans Directly and Does Not Guaranty You Will Qualify.

The VA does not actually lend the money to you directly. They offer a guaranty to a lender that if you should default on the loan, they will pay the lender a percentage of the loan balance.

*The word GUARANTY does not actually guarantee the veteran will qualify for a VA home loan.

Primary Benefits of a VA Mortgage:

  • 100% financing
  • No monthly private mortgage insurance is required
  • There is a limitation on buyers’ closing costs
  • The loan is assumable, subject to VA approval of the assumer’s credit
  • 30 year fixed loan
  • Seller can pay up to 4% of the veterans closing costs and even pay down they buyer’s debt to help lower their debt-to-income ratio
  • Interest rates are similar to FHA rates
  • You don’t need perfect credit

Frequently Asked Questions:

Q: My parent is a veteran. Can I obtain a VA loan if I have not served in the military myself?

No, the VA loan benefit does not extend to a veteran’s children.

Q: What is required to prove my record of military service?

You will be required to us Standard Form 180, Request Pertaining to Military Records, to apply for proof of military service.

Q: My spouse who has passed away was an eligible veteran. I am eligible for the home loan benefit myself?

A surviving spouse is eligible if they have not remarried, and the eligible veteran died during active duty service or as a result of a service-related disability.

Q: Is a VA loan better than a conventional mortgage?

In many cases, yes. VA guaranteed loans often offer a lower interest rate than conventional mortgages, they do not require monthly private mortgage insurance when borrowing more than 80% of a home’s value, and they can be easier to get approved for.

Q: How long does it take to get approved for a VA loan?

It varies depending on the current workload of your lender, but it is typically the same as for conventional mortgages – 3 weeks to 45 days.

VA Loan Requirements & Eligibility

March 14, 2011 by · Leave a Comment 

Veterans with active duty service (who were not dishonorably discharged) 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 of service.

Veterans and active duty military personnel who served during peacetime must have had more than 180 days of active service. Veterans of enlisted service starting after September 7, 1980, or officers with service beginning after October 16,1981, must in most cases have served at least 2 years.

The VA does not require that you have a certain credit score in order for approval. The actual mortgage lenders, however, are allowed to set their own standards for VA loan requirements.

Changing economic conditions and increased losses due to loan defaults have motivated lenders to limit who they will lend to.

Since early 2010, most VA lenders in the U.S. have tightened their lending and credit score requirements, making home financing harder to come by for those with credit issues or other criteria that makes their loan more risky.

As a result, getting a loan without a down payment is more difficult, though one of the few remaining options for 100% financing is a VA loan. Major lending groups have generally resolved to set the minimum credit score requirement at 620.

To learn more about this, our article Credit Score Requirements For VA Mortgages is a great place to start.

There are three specific pieces of documentation a lender will need to determine your eligibility:

  • A DD214 for discharged veterans.
  • A statement of service for active military personnel.
  • A certificate of eligibility (COE) to determine you have VA entitlement.

Because each lender has different qualifying guidelines, the next step is to contact your lender to find out if you meet their VA loan requirements such as minimum FICO/credit scores, debt-to-income (DTI) ratios, and find out what your county’s maximum loan amount is.

Your VA lender can help you attain your certificate of eligibility on your behalf.

Lastly, if you have either had a divorce, filed bankruptcy, or had a previous home go into foreclosure, you are not immediately disqualified from a VA loan, although there are some additional restrictions.

You can find more information regarding these topics in our articles titled Divorce And VA Loan Eligibility, Does A Bankruptcy Mean I Can’t Get A VA Loan? and Can I Get A VA Loan If I’ve Had A Recent Foreclosure?

VA Refinancing Options For Eligible Homeowners

March 14, 2011 by · Leave a Comment 

VA mortgage loans allow you to refinance your home to take advantage of lower interest rates that can ultimately save you sizable sums of money in both the long-run and the short-run by lowering your monthly payment.

If you currently have a conventional loan, you can refinance into a VA loan if you are an eligible veteran or member of the armed services. Transferring from a conventional mortgage to a VA mortgage is known as a “Conventional to VA Refinance Loan” and is a very straightforward process.

The “Conventional to VA Refinance Loan” process is described in detail in our article Can I Qualify For A VA Refinance If I Currently Have A Conventional Loan?

A common question related to VA refinancing is whether or not you can get a refinance on a VA loan if you are currently upside down on your mortgage. The answer is…you can!

Just to be clear, being “upside down” on a mortgage is when you owe more on your mortgage than the current value of your home. This is a highly unfortunate situation that many American home owners are facing today.

In 2008 a law titled the “Veteran Benefits Improvement Act” was passed to assist veterans who were upside down on their mortgage. This law created the opportunity for eligible veterans to get a VA refinance and improve their financial circumstances.

The enhancements made to the VA home loan program are described in our article Can I Refinance My VA Loan If I Am Upside Down On My Mortgage?

Of course, you are also allowed to refinance your home if you currently have a VA mortgage. An Interest Rate Reduction Refinancing Loan (IRRRL) is considered a VA Streamline Refinance.  This is a quick and easy way to either lower your monthly mortgage payment or take money out of your home with minimal work, at no cost to you!

Some of the additional benefits of a VA Streamline Refinance or IRRRL include:

  • In some cases, you may not need to have an appraisal of your home.
  • Limited income verification.
  • An extremely low VA Funding Fee – only 0.5%

How To Purchase A Home With A VA Loan

March 14, 2011 by · Leave a Comment 

Taking out a VA mortgage loan on a new home purchase is a fantastic way to finance a property with a low interest rate, with little to no required downpayment.

Purchasing a home with a VA loan may seem like a daunting task at first glance, but it is actually pretty straightforward.

The basic process is as follows:

  1. Find the property you would like to buy and arrange the purchase with the seller.  You’ll then sign a purchase contract conditional upon approval of a VA guaranteed loan.
  2. Choose your lender, present your Certificate of Eligibility, and finish the loan application. Your lender will determine your credit and submit a request to the VA to dispatch a licensed appraiser to evaluate the value of the property.
  3. If the determined value is acceptable to all involved parties, and the lender determines that your loan application meets the VA loan requirements, your mortgage can be approved.
  4. You (and co-borrower, if applicable) will then attend the loan closing and sign the related papers. The closing escrow agent or attorney will explain loan terms and requirements and monthly payment details.

After these steps are completed, you will own your own home with a low-interest VA purchase mortgage, with no private monthly mortgage insurance required!

Please note that when the VA receives report of the loan, the Certificate of Eligibility is adjusted to reflect use of entitlement and is then returned to the veteran.

No further actions are required to get your COE back, which just makes the overall process easier for veterans.

A common question we get is, “How long does the VA loan approval process actually take?” The overall period of time it takes for a VA mortgage approval varies depending on the amount of volume the lender has at that moment. It also depends on how quickly the VA borrower is able to respond to documentation requests.

As of late, getting full approval and closing your VA purchase mortgage has been taking between 3 weeks to 45 days. This time-frame is more or less the same as that for conventional loans.

There are some things you can do to ensure your loan process is as quick as possible, such as sending requested documents as soon as possible, working with a knowledgeable VA loan specialist, and making your hours of availability as flexible as you can.

For further advice on how to make sure your loan process goes as fast and smoothly as possible, please read our article titled VA Mortgage Approval – How Long Does It Take?

What Is A VA Mortgage Loan Entitlement?

March 8, 2011 by · Leave a Comment 

One of the main questions we receive in regards to VA loans is, “What is a VA mortgage loan entitlement?

If you’re wondering this, don’t worry; you’re definitely not alone!

Rather than acting as a lending agent itself, the Veterans Administration simply guarantees the home loans of veterans. This means that if the borrower defaults on the mortgage, the lender has an insurance policy with the VA for the entitlement amount.

Because they are protected against losses, VA lenders can offer more favorable terms on VA loans. The VA is able to give a guaranty to applicants who fulfill the eligibility requirements, which include but are not limited to:

  • Having a good credit score, typically above 620.
  • Having enough income for monthly mortgage payments.
  • Not having a bankruptcy or foreclosure within the past 24 months.

For the majority of veteran borrowers, the standard entitlement for a VA loan is $36,000 for a loan equal to or less than $144,000. However, if your loan amount is over $144,000, the Veterans Administration will offer a guaranty of up to 25% of your county limits.

County limits for VA loans vary greatly throughout different parts of the United States. You can determine what your limit is by looking at the list of specific VA county loan limits on va.gov.

It is important to note that the VA does not list every county. Counties that are not included in the official 2011 VA County Loan Limits website have a loan limit of $417,000.

After reading this you may be wondering to yourself, “Why does the Veterans Administration have different loan limits for different counties?” The long and short of it is that housing markets across the United States vary greatly.

For example, the average price of a house in California is close to double the average price for a house in Ohio! It would never work to have a set one-size-fits-all limit for all 50 states.

Keep in mind that while the VA does not set a cap for how much veterans can borrow, some VA mortgage lenders may not approve loans above $417,000. This is because lenders usually sell bundles of VA loans in secondary markets, where – you guessed it – the maximum loan limit can be $417,000.

It’s important to note that VA loan entitlements have also gradually risen over time. Because of this, many veterans who have previously taken out a VA loan might actually be qualified for more money today than they were originally.

If you have taken out a VA loan in the past, you can contact us to quickly determine whether or not you are indeed eligible for some portion of your VA loan entitlement now.

This all ties into the fact that veterans are allowed to take out more than a single VA loan as long as they are not concurrent, and that you can also refinance with a VA loan!

In other words, if you took out a VA loan on the house that you are currently living in, but have decided to sell it and move, you can take out another VA loan for the house that you want to buy.

However, you cannot have two VA loans at the same time.

Is A VA Loan Better Than A Conventional Mortgage?

March 8, 2011 by · Leave a Comment 

For eligible veteran and active duty military borrowers a VA loan is often a better option than a conventional mortgage. This is due to the many distinct advantages offered by VA loans.

For starters, VA loans have fantastic interest rates. VA loan rates can be up to .50% lower than what you would get in a conventional mortgage!

That may not sound like much, but over the course of a year it can add up to a substantial savings.

Another big advantage of VA mortgages is that they do not require any monthly mortgage insurance.

Private mortgage insurance (PMI) is generally required on conventional loans when borrowing more than 80% of the value of a property, and the percentage amount varies with the loan-to-value.

Once again, this may not seem like a lot of money, but when added up, PMI also ends up costing hundreds of dollars a year, if not more.

By combining only the saved expenses of lower VA loan rates and the elimination of the PMI requirement, you are already looking at savings in the hundreds to thousands of dollars a year, depending on the total loan amount.

It is also typically easier to qualify for a VA mortgage loan than a conventional mortgage. This has become especially true with the current downturn in the housing market.

VA loans do not require any money down at time of purchase, and, as is often the case, with no cash out of pocket. It is impossible to find 100% financing for a conventional loan nowadays.

In addition, veterans are allowed to choose between having a fixed rate or an adjustable rate for their VA mortgage. The difference between the two options is as follows:

  • Fixed rate loans have only one interest rate that is used throughout the duration of the loan.
  • Adjustable rate loans start off with a set interest rate, but after an established time period the person who took out the loan can have their rate changed if it would work in their favor.

The Department of Veterans Affairs does have a funding fee requirement for VA loans. This funding fee can be anywhere between 0.5% to 3.3% of the loan total. However, veterans who were classified as disabled during at least 10% of their time in active duty do not have to pay the fee.

Refinancing with a VA loan also has many benefits over refinancing with a conventional loan. Some of these benefits include:

  • A higher refinance limit (up to 90% and some 100%) than the majority of conventional loans.
  • Easier credit requirements, which often make refinancing with a VA loan simpler and less stressful.
  • Help from the Department of Veterans Affairs for borrowers currently in default because of financial hardship.
  • No requirement of private mortgage insurance.
  • The ability to include the VA funding fee with the total amount of the refinance.

Between the tremendous savings and easier terms, any veteran who is in the home-buying process should strongly consider using their hard earned VA benefits. In both the long and short, it simply makes sense.

Certificate Of Eligibility for A VA Loan

March 8, 2011 by · Leave a Comment 

In order to apply for a VA loan you will need a Certificate of Eligibility, or COE for short.

There are different steps required to receive a Certificate of Eligibility depending on your personal situation and branch of the military.

NOTE: You will need your DD214 Discharge papers no matter what route you take below. An honorable discharge and completion of your tour of duty are typically required in all cases.  This will determine if you are eligible for this benefit, you will need to contact a VA lender to determine if you qualify.

Group 1: Veterans, Activity Duty, Reservists and National Guard Members Who Been on Active Duty

If you belong to one of the above categories then you have three different ways that you can receive a COE:

  • Apply Through Mail: Fill out VA Form 26-1880, which you can find on va.gov, the official VA website. You can then mail it to the address that is listed on the form.
  • Apply Through A Lender: Your lender may be able to acquire your COE for you online; if so, the process typically only takes a few minutes. Be sure to speak to your lender beforehand to determine whether or not this is an option.

If for whatever reason you cannot print out Form 26-1880 you can contact the VA at 1-888-244-6711 and request a copy be mailed to you.

Group 2: Reservists and National Guard Members Who Have Not Been On Active Duty

Group 2 enjoys the same options as Group 1 above.

Group 3: Spouses of Veterans Who Either Passed Away During Service or As a Result of Service

Unlike the application options for Groups 1 and 2, you are required to mail your application.

If your spouse passed away during service, the process is relatively quick and straightforward. However, if your spouse passed away after service, the VA must first confirm that the death resulted from a disability connected to the service.

This process can take anywhere between 2 to 3 months depending on the current caseload of the VA.

To apply, download and fill out VA Form 26-1817, which you can find on http://www.va.gov, the official VA website. The address you should mail the form to is:

VA Loan Eligibility Center
PO Box 20729
Winston-Salem, NC 27120

Similar to above, if for whatever reason you cannot print out Form 26-1817, you can contact the VA at 1-888-244-6711 and request a copy be mailed to you.

Regardless of the category you personally fall into, you will have to provide some sort of evidence to prove you are eligible for a COE. The eligibility graph on the VA website (located at http://benefits.va.gov/homeloans/eligibility.asp) details exactly what kind of evidence will be required from you.

Are There VA Jumbo Loans Available?

March 8, 2011 by · Leave a Comment 

If you’re looking at buying the home of your dreams – and the price reflects it – then a VA jumbo loan may very well be the best option for your mortgage.

In most veteran loan scenarios, the VA guarantees up to 25% of the total amount of the loan up to the VA loan limit in your county – which, in much of the US, is $417,000.

But what happens when the value of the loan exceeds your county loan limit?

This is where VA jumbo loans come into the picture.

For the purposes of this example, let’s say that you live in a county where the VA loan limit is indeed $417,000. You find the perfect house for you and your family, and it’s selling for $517,000.

You decide that you would like to use your hard-earned veteran benefits to take out a VA mortgage!

So, the VA guarantees $104,250 of your loan (with $104,250 being 25% of $417,000). Yet what happens with the remaining $100,000 of the loan?

Simple. The U.S. Department of Veterans Affairs mandates that on jumbo loans above the county loan limit, the borrower put down 25% of the difference between the cost of the loan and the applicable county VA loan limit.

Continuing on with our jumbo loan example from above, 25% of $100,000 ($25,000) would be required as a down payment, and the VA would guarantee 25% of $417,000 ($104,250).

Not bad at all! In this example you’re buying your $517,000 dream home for only $25,000 down in addition to the required closing costs.

The real value of VA jumbo loans is apparent when you compare and contrast it to the standard down payment requirement of a conventional mortgage, which is typically 20% to avoid paying private mortgage insurance.

This means that for the example $517,000 house, a conventional loan down payment would be $103,400 while a VA loan down payment would only be $25,000. That’s less than one quarter of the down payment required for the conventional loan in this scenario!

Please keep in mind while house shopping that VA county loan limits vary widely throughout the country and will be higher in areas with especially high property values. Once again, the standard VA county loan limit is $417,000, but it’s smart to check with your local VA mortgage agent prior to looking at houses.

For example, as of 2011 the VA county loan limit for Marin County is $1,000,000! San Francisco County has a loan limit of $1,000,000 as well.

To check what the VA county loan limits are for each county in the United States, you can visit the U.S. Department of Veterans Affairs at their loan limit website. For counties that are not listed on the website, the official VA loan limit is automatically set at $417,000.

Why is there such as large difference in county loan limits throughout the nation? In short, because the various housing markets across the country vary greatly.

In San Francisco a small single-family house may sell for $1,000,000, while in other places you might be able to find a similar house for $100,000!

Wherever you are, if you are in need of a substantial home loan, a VA jumbo loan is certainly worth checking out.

 
 
Hans Bruhner and Finance of America Mortgage LLC are both licensed by the California Department of Business Oversight under the CRMLA