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 down payment at all. Aside from the veteran’s certificate of eligibility and the fact that the appraiser is assigned by VA, the application process is not much different than any other type of mortgage loan.
- A Good Deal
- What is a VA Guaranteed Loan?
- What Can a VA Loan Be Used For?
- Had a VA Loan Before?
More than 27 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:
- Most important consideration, no down payment is required in most cases.
- 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 $417,000 ($625,500 for loans in Hawaii, Alaska, Guam and U.S. Virgin Islands). This figure is subject to change each year.
- Flexibility of negotiating interest rates with the lender.
- No monthly mortgage insurance premium to pay.
- Limitation on buyer’s closing costs.
- An appraisal, which informs the buyer of estimated property value.
- Thirty-year loans with a choice of repayment plans.
- Traditional fixed payment: (constant principal and interest: increases or decreases may be expected in property taxes and homeowner’s insurance coverage); Graduated Payment Mortgage-GPM (low initial payments which gradually rise to a level payment starting in the sixth year); and 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). Hybrid ARMs: VA is authorized to guarantee hybrid ARM loans where the initial rate remains fixed for at least 3 years. The initial adjustment can be as much as 2 percent if the fixed rate period is 5 or more years. Annual adjustments thereafter are limited to 1 percent if the fixed rate period is less than 5 years, and 2 percent if the fixed rate period is 5 or more years. If the fixed rate period is less than 5 years, the initial adjustment is limited to 1 percent and the annual cap to 5 percentage points.
- New homes, which are appraised before or during construction, are inspected to help ensure compliance with the plans and specifications used for the appraisal and with VA minimum property requirements. All new houses, regardless of when appraised, are covered by either a 1-year builder’s warranty or a 10-year insured protection plan.
- An assumable mortgage, subject to VA approval of the assumer’s credit.
- Right to prepay loan without penalty.
- VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties.
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 AREA LIMITS ($625,500 for loans in Hawaii, Alaska, Guam and U.S. Virgin Islands), depending on the borrower’s income level and the appraised value of the property. Your VA Regional Loan Center can provide more details on guaranty and entitlement amounts.
- To buy a home, a condominium unit in a VA-approved project, or to purchase a unit in a cooperative (co-op).
- 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.
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. For certain loans in excess of $144,000, the basic $36,000 entitlement can be increased to a maximum guaranty equal to 25 percent of the Freddie Mac conforming loan limit for a single family residence, minus any previously used entitlement.
Most lenders require that a combination of the guaranty entitlement and any cash down payment 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-down payment loan to buy a property valued at and selling for $94,000. The veteran could also combine a down payment 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. 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. Remaining entitlement and restoration of entitlement can be requested through the VA Eligibility Center by completing VA Form 26-1880.
Please view our Disclosures page for details.
Call Theresa Springer (MLO #70667/NMLS #70667) today at 360-798-4161 to see the difference that working with an experienced home loan professional can make for you.
Word on the Street...
"We went through a very challenging purchase where, after accepting our offer, the seller couldn't produce clear title. Theresa's extraordinary knowledge was our greatest advocate - she'd even advised the title company as to what steps needed to be taken. In the end, we walked from that purchase, but Theresa stood by us through it until we eventually found the beautiful home we did ultimately purchase. She's an incredible professional and we can't recommend her strongly enough!" -- Drew & Linda Z.
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