VA Loans

What is a VA Guaranteed Loans?

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home which must be for their own personal occupancy. To get a loan, a veteran must apply to a lender. If the loan is approved, VA will guarantee a portion of it to the lender. This guaranty protects the lender against loss up to the amount guaranteed and allows a veteran to obtain favorable financing terms.

There is no maximum VA loan but lenders will generally limit VA loans to $417,000. This is because lenders sell VA loans in the secondary market, which currently places a $417,000 limit on the loans. For loans up to this amount, it is usually possible for qualified veterans to obtain no downpayment financing. A veteran's maximum entitlement is $36,000 (or up to $104,250 for certain loans over $144,000). Lenders will generally loan up to 4 times a veteran's available entitlement without a downpayment, provided the veteran is income and credit qualified and the property appraises for the asking price.

VA Loans Offer The Following Important Features:

• Equal opportunity for all qualified veterans to obtain a VA loan.
• No downpayment (unless required by the lender or the purchase price is more than the reasonable value of the property).
• Buyer informed of reasonable value.
• Negotiable interest rate.
• Ability to finance the VA funding fee (plus reduced funding fees with a downpayment of at least 5% and exemption for veterans receiving VA compensation).
• Closing costs are comparable with other financing types (and may be lower).
• No mortgage insurance premiums.
• An assumable mortgage.
• Right to prepay without penalty.
• For homes inspected by VA during construction, a warranty from builder and assistance from VA to obtain cooperation of builder.
• VA assistance to veteran borrowers in default due to temporary financial difficulty.

VA Does Not Do The Following:

• Guarantee that a home is free of defects. VA guarantees only the loan. It is the veteran's responsibility to assure that he/she is satisfied with the property being purchased. The VA appraisal is not intended to be an "inspection" of the property. A veteran should seek expert advice (a qualified residential inspection service), as necessary, BEFORE legally committing to a purchase agreement.
• If you have a home built, VA cannot compel the builder to correct construction defects although VA does have the authority to suspend a builder from further participation in the home loan program.
• VA cannot guarantee that a veteran is making a good investment.
• VA cannot provide a veteran with legal services.

How Does A Veteran Obtain A VA Guaranteed Loan?

1. Contract to purchase: Veteran selects home and discusses purchase with seller or selling agent and signs purchase contract conditioned on approval of a VA guaranteed loan.
2. Loan application: Veteran selects lender, presents Certificate of Eligibility, and completes loan application. Lender will develop all credit information and request VA to assign a licensed appraiser to determine the reasonable value for the property. Veteran will pay for credit report and appraisal unless the seller agrees to pay. Either VA or the lender will issue a value for property for loan purposes based on the appraisal.
3. Loan decision: If the established value is acceptable to all parties and the lender develops that a veteran is credit and income qualified, the loan may be approved. Most lenders are authorized to make this decision.
4. Loan closing: Veteran (and spouse) attend the loan closing and sign the note, mortgage, and other related papers. The lender or closing attorney will explain the loan terms and requirements as well as where and how to make the monthly payments. When the loan is reported to VA, the Certificate of Eligibility is annotated to reflect the use of entitlement and returned to the applicant. (The loan closing procedure may vary in some states.)

VA will analyze a borrower's past credit performance in determining the loan for approval. A borrower who has made timely payments for the last 12 months serves as a guide and demonstrates their willingness to repay future credit obligations. On the opposite side, a borrower who reflects continuous slow payments, judgments and delinquent accounts is not a good candidate for loan approval.

Below is a list of items concerning the borrower's credit:

LATE MORTGAGE PAYMENTS
In circumstances not involving bankruptcy, satisfactory credit is generally considered to be reestablished after the veteran, or veteran and spouse, have made satisfactory payments for 12 months after the date of the last derogatory credit item(s).
When the underwriter analyzes the borrowers credit; it is the overall pattern of credit behavior that must be reviewed, rather than isolated cases of slow payments. A period of financial difficulty does not disqualify the borrower if a good payment pattern has been maintained since then.
Account balances reduced to judgment by a court must either be paid in full or subject to a repayment plan with a history of timely payments.

NO CREDIT HISTORY
In the area of credit, the lack of an established credit history should not be a deterrent to loan approval. As provided in the credit standards, a satisfactory payment history on items such as rent, utilities, phone bills, etc., may be used to establish a satisfactory credit history.

CHAPTER 7 BANKRUPTCY
The VA guidelines state that a minimum of two years must elapse since the discharge date of the borrower and / or spouse's Chapter 7 bankruptcy, not the filing date. A full explanation of the bankruptcy will be required. The borrower must also have re-established good credit, qualify financially and have good job stability.

CHAPTER 13 BANKRUPTCY
The VA guidelines state that they will consider a borrower still paying on a Chapter 13 Bankruptcy if the payments to the court have been satisfactorily made and verified for a period of one year. In addition, the court trustee will need to give written approval to proceed. A full explanation of the bankruptcy will be required. The borrower must also have re-established good credit, qualify financially and have good job stability.

COLLECTIONS, JUDGEMENTS AND FEDERAL DEBTS
The VA guidelines state that if a collection is minor in nature, it usually does not need to be paid off as a condition for loan approval. Judgments must be paid in full prior to closing. A borrower is not eligible for the loan if they are delinquent on any federal debt. This can include tax liens, student loans, etc. Payment arrangements that would bring the borrower up to date may be considered for loan approval.

FORECLOSURE
A borrower whose previous residence or other real property was foreclosed on or given a deed-in-lieu of foreclosure within the previous two years since the disposition date is generally not eligible for a VA insured mortgage. If the foreclosure was on a VA loan, the applicant may not have full entitlement available for the new loan.

CONSUMER CREDIT COUNSELING PLAN If a veteran, or veteran and spouse, have prior adverse credit and are participating in a Consumer Credit Counseling Plan, they may be determined to be a satisfactory credit risk if they demonstrate 12 months' satisfactory payments and the counseling agency approves the new credit

VA Loan Funding Fees for Loans Closed on or After November 22, 2011
The VA funding fee is required by law. The fee, currently 2.15% on no down payment loans for a first-time use, is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers. The funding fee for second time users who do not make a down payment is 3.3%. The idea of a higher fee for second time use is based on the fact that these veterans have already had a chance to use the benefit once, and also that prior users have had time to accumulate equity or save money towards a down payment.

For purchase and construction loans, members of the regular military fall into the category of first time user or subsequent user. For first time users, no down payment requires a 2.15% fee, down payment of at least 5 percent but less than 10 percent requires a 1.5% fee, and down payment of 10% or more requires a 1.25% fee. For subsequent users, no down payment requires a 3.3% fee, down payment of at least 5 percent but less than 10 percent requires a 1.5% fee, and down payment of 10% or more requires a 1.25% fee.

For the category of Reserves / National Guard, first time users with no down payment requires a 2.4% fee, down payment of at least 5 percent but less than 10 percent requires a 1.75% fee, and down payment of 10% or more requires a 1.5% fee. For subsequent users for the category of Reserves / National Guard, no down payment requires a 3.3% fee, down payment of at least 5 percent but less than 10 percent requires a 1.75% fee, and down payment of 10% or more requires a 1.5% fee.

Cash-out refinancing loans for regular military require a 2.15% fee for first time users and a 3.3% fee for subsequent users. For Reserves / National Guard, the requirement is a 2.4% fee for first time users and a 3.3% fee for subsequent users. If there are down payments involved, refer to the information above. On interest rate reduction loans, the VA funding fee is .50% and it is 1.0% on Manufactured Home Loans.

The following persons are exempt from paying the funding fee:

• 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).Please note that the VA has the final say on who is exempt

Please note that the VA has the final say on who is exempt

HOW TO HAVE MINIMAL TO NO CLOSING COSTS
Please note that often times veterans believe that closing costs are covered by a VA mortgage. While that is not technically true, the same effect can be reached through careful structuring of your real estate contract. The loan amount will be the purchase price or appraised value, whichever is less (plus the VA Funding Fee). So if you want your closing costs covered by the loan, you need to increase the price and have a stipulation with the seller will pay the closings costs and pre-paid expenses equal to the amount by which you have increased the price. As long as the home appraises for the increased price, you will have the closing costs paid as part of the deal. Closing costs and pre-paid expenses can vary widely with 3% - 5% as the range for most places. If you want a more specific number in this regard after you have started looking for properties, we can provide you with a Good Faith Estimate for a particular property that you have an interest.

ITEMIZED FEES AND CHARGES
The VA defines allowable fees and charges that the veteran borrower can pay or closing costs that may be charged to the borrower. These costs are determined as reasonable and customary by each local VA office. All other costs in the transaction are considered non-allowable and generally paid by the seller when purchasing a new home or by the lender when refinancing your current VA mortgage. Itemized fees and charges are as follows:

APPRAISAL AND COMPLIANCE INSPECTIONS
The veteran can pay the fee of a VA Appraiser and VA compliance inspectors. The veteran can also pay for a second appraisal if they are requesting a reconsideration of value. The veteran cannot pay for a second appraisal if the lender or seller is requesting a reconsideration of value or if parties other than the veteran or lender request the appraisal.

RECORDING FEES
The veteran can pay for recording fees and recording taxes or other charges incident to recordation.

CREDIT REPORT
The veteran can pay for the credit report obtained by the lender.

PREPAID ITEMS
The veteran can pay that portion of taxes, assessments, and similar items for the current year chargeable to the borrower and the initial deposit for the tax and insurance account.

HAZARD INSURANCE
The veteran can pay for the hazard insurance premium. This includes flood insurance, if required.

FLOOD ZONE DETERMINATION
The veteran can pay the actual amount charged for a determination of whether a property is in a special flood hazard area, if made by a third party who guarantees the accuracy of the determination.

SURVEY
The veteran can pay a charge for a survey, if required by the lender.

TITLE EXAMINATION AND TITLE INSURANCE
The veteran may pay a fee for title examination and title insurance, if any. If the lender decides that an environmental protection lien endorsement to a title policy is needed, the cost of the endorsement may be charged to the veteran.

SPECIAL MAILING FEES FOR REFINANCING LOANS
For refinancing loans only, the veteran can pay charges for Express Mail or a similar service when the saved per diem interest cost to the veteran will exceed the cost of the special handling.

VA FUNDING FEE
Unless exempt from the fee (10% minimum disability from the VA), each veteran must pay a funding fee to VA.

OTHER FEES AUTHORIZED BY THE VA
Additional fees attributable to local variances may be charged to the veteran only if specifically authorized by VA. The lender may request VA to approve such a fee if it is, (a) normally paid by the borrower in a particular jurisdiction, and (b)considered reasonable and customary in the jurisdiction.

The following list provides examples of items that CANNOT be charged to the veteran as "itemized fees and charges." Instead, the lender must cover any cost of these items out of its flat 1% fee.

Loan closing or settlement fees, document preparation fees, preparing loan papers or conveyance fees, attorneys services other than for title work, photographs, interest rate lock - in fees, postage and other mailing charges, stationery, telephone calls and other overhead, amortization schedules, pass books, and membership or entrance fees, escrow fees or charges, notary fees, preparation and assignment of mortgage to other secondary market purchasers, trustee's fees or charges, loan application or processing fees, fees for preparation of truth-in-lending disclosure statement, fees charges by loan brokers, finders or other third parties, and tax service fees.

When reviewing allowable borrower fees and charges, many of the items can be paid for by the seller of the home and can be negotiable when presenting an offer on a home to the seller. Please consult with your Real Estate Professional handling the transaction.