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.
VA loans for military veterans 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 $417,000 depending on the borrower’s income level and the appraised value of the property. Your Mortgage Advisor can provide more details on guaranty and entitlement amounts.
The more you know about the VA home loan program, the more you will realize how little “red tape” there 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. And if the lender is approved for automatic processing and the Lender Appraisal Processing Program (LAPP), as more and more lenders are now, a buyer’s loan can be processed and closed by the lender without waiting for VA’s approval of the credit application or for VA to review the appraisal.
Before arranging for a new mortgage to finance a home purchase, veterans should consider some of the advantages of VA home loans:
- The 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.
- The 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. Traditional ARM loans: VA can also guarantee traditional 1-year ARM loans where the rate is adjusted annually. Annual adjustments are limited to 1 percent and the maximum interest rate increase over the life of the loan is limited 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.
To obtain your VA home loan, just follow these steps:
- Meet with your Mortgage Adviser, or any other lender you select, and present them with your Certificate of Eligibility and completed loan application. Most lenders can help you get your Certificate of Eligibility if they have access to the ACE (automated certificate of eligibility) system. This Internet-based application can establish eligibility and issue an online Certificate of Eligibility in a matter of seconds. Not all cases can be processed through ACE – only those for which the VA has sufficient data in their records. If not, your Mortgage Advisor can provide you with VA Form 26-1880, which must be sent along with your proof of service to the VA Eligibility Center.
- Work with your Century 21 Schmidt Real Estate professional to find your new home. Sign a purchase contract conditioned on the approval of your VA home loan.
- Your Mortgage Advisor will gather all credit and income information. They will also request the VA to assign a licensed appraiser to determine the reasonable value for the property. A Certificate of Reasonable Value will be issued. Note: You may be required to pay for the credit report and appraisal unless the seller agrees to pay.
- The lender will let you know the decision on the loan. You should be approved if the established value and your credit and income are acceptable.
- You (and spouse) attend the loan closing. The lender or closing agent will explain the loan terms and requirements as well as where and how to make the monthly payments. Sign the note, mortgage, and other related papers.
- The loan is sent to VA for guaranty. Your Certificate of Eligibility is annotated to reflect the use of entitlement and returned to you.
For more information on VA home loans, please call Century 21 Schmidt Real Estate Customer Service Center at (800) 890-4018.