VA - Veterans Affairs Guaranteed Loans
VA - Veterans Affairs Guaranteed Loans
A VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders, and VA “stands behind” the loan with that lender. If something goes wrong and you can’t make the payments anymore, the lending institution can go to VA to cover any losses they might incur.
The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to support home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment.
• Active duty personnel
• Certain reservists and National Guard members
• Surviving spouses of persons who die on active duty or die as a result of service-connected disabilities
• Certain spouses of active duty personnel who are (a) missing in action, (b) captured in line of duty by a hostile force, or (c) forcibly detained by a foreign government or power
Here are some advantages of the VA program:
• You can buy a home without a down payment - as long as the sales price doesn’t exceed the appraised value. (Of course, you have to qualify in terms of income and credit.)
•You won’t need to buy private mortgage insurance.
•VA rules limit the amount you can be charged for closing costs.
•Closing costs may be paid by the seller. (You should keep this in mind when negotiating the sales price.)
•The lender can’t charge you a penalty fee if you pay the loan off early.
•VA may be able to provide you some assistance if you run into difficulty making payments.
You should also know:
• You don’t have to be a first-time homebuyer.
• You can reuse the benefit.
• VA-backed loans are assumable, as long as the person assuming the loan qualifies.
VA doesn’t specify a maximum loan amount. But the law does set limits on the amount of liability VA can assume. This usually affects the amount of money an institution will lend you.
The lender may be able to increase the size of the loan if you can make a down payment.
When the lending institution is deciding how big a loan you can afford, it uses either of two methods:
• One Method is the “residual income calculation.” The lender adds up your routine housing expenses, taxes, and additional debt payments such as your car and credit
cards. He or she subtracts this total from your income. Then the lender decides whether you’ll have enough money left over for everyday living.
•The second method is the debt-to-income ratio. Under VA’s rules, this is the ratio of your total debt (both housing and other debt) to your income.
Although VA doesn't require private mortgage insurance they do charge a funding fee. (This can be folded into the loan.) If you receive service-connected disability payments each month, you're exempt from the fee.
Other costs will be involved. Of course, the lender charges interest. And some other fees and charges have to be paid at closing. Here are some general rules:
• The lender, not VA, sets the interest rate, the “discount points,” and closing costs. These rates may vary from lender to lender.
• The seller can pay for some closing costs. (Under VA rules a seller’s “concessions” can’t exceed 4% of the loan. But only some types of costs fall under this 4% rule. Examples are: payment of pre-paid closing costs, VA funding fee, payoff of credit balances or judgments for the veteran, and funds for temporary “buydowns.” Payment of discount points is not subject to the 4% limit.)
• You’re not allowed to pay for the termite report, unless the loan is a refinance. That fee is usually paid by the seller.
Please contact us today for more information on VA guaranteed mortgages.