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Loan Guaranty Loan Production
VA's Home Loan Program is for veterans
and active duty military personnel (referred to as veterans throughout
the rest of the document) and certain members of the reserves and national
guard. VA's program provides an excellent product and benefit for those
individuals who have served or are serving to protect our families and
our nation, as well as giving them a form of financing that will allow
real estate professionals to sell more homes.
For those who are unfamiliar with the
program, there are several advantages to using VA's Home Loan Program.
The VA allows a veteran who qualifies income and credit-wise to purchase
a primary residence without putting money down towards the sales price,
as long as the sales price does not exceed the appraised value. Veterans
do, however, need money towards closing costs and the earnest money deposit,
which the seller generally requires when a sales contract is signed. Closing
costs may be paid by the seller, which is an item to consider when the
sales price is being negotiated.
Other benefits of using VA's program (other than the 100% financing
of the sales price) include:
1. loans are assumable,
provided the assumer is qualified;
2. Veteran's closing costs are limited by VA;
3. additional assistance is offered by VA should veterans have problems
making their home loan payments in the future
4. prepayment of the loan without a penalty
Here are some quick
facts you may find useful concerning purchase transactions:
1. VA does not have
a maximum loan amount. However, lenders do sell loans on the secondary
mortgage market, so they will generally limit loans to $240,000 with
no downpayment. With a downpayment, loans may exceed $240,000.
2. The veteran does have to qualify income and credit wise.
3. The veteran does have to occupy the home as their primary residence.
4. The veteran does not have to be a first time home buyer and may reuse
his/her benefit.
5. The lender, not VA, sets the interest rate and discount points, so
they may vary from lender to lender.
6. There is no private mortgage insurance, but VA does charge an up
front VA funding fee, which may be financed. The exception to this is
that if a veteran is in receipt of VA service connect disability payments
each month, he or she does not have to pay a VA funding fee.
7. The seller can pay for closing costs. There is a requirement that
seller concessions do not exceed 4%, but only certain items are considered
as part of the concession; ie. payment of pre-paids, VA funding fee,
payoff of credit balances or judgments on behalf of the veteran, funds
for temporary buy-downs (not discount points).
8. The veteran is not allowed to pay for the wood destroying insect
(termite) report; it is generally paid by the seller.
9. VA does not approve the majority of loans. The majority of transactions
are handled directly by the lender with little VA intervention.
Here are additional
items you may choose if you find them useful:
Certificates
of Eligibility What is needed, and how to obtain it.
Lost proof of service? Visit the National
Archives & Records Administration or from the American
War Library
Need to find lenders? Click
here
How Much Can the
Veteran Afford (And Other Important Factors)
Please note that VA
uses 2 methods for qualification purposes. The primary method of evaluating
a veteran's income is the residual income method. Under this method, the
underwriter determines that a veteran has sufficient income to cover day-to-day
living expenses after paying housing expenses, taxes, and other debts
such as car payments and credit card payments. VA also uses a debt-to-income
ratio method like many programs. However, VA uses only one ratio which
is the ratio of total debt (both housing and other debt) to income. To
calculate the ratio click here.
IMPORTANT:
This is provided for informational purposes only. A VA approved lender
is the best resource to see how large a VA loan the veteran truly qualifies
for. The lender will look at income (amount and stability), credit and
compensating factors involved when rendering a decision. VA also allows
lenders to use certain approved automated underwriting systems.
Link to Other Useful
Sites
Ginnie
Mae This site will give you information on the process and calculators
HUD Contains information
on shopping for a home, closing costs and terminology.
MBA (Mortgage Bankers Association of America)
Will give you information on the purchase process, calculators and real
estate terms. Internet website.
Freddie Mac (Federal Home
Loan Mortgage Corp) Site will give you information the purchase process
and real estate terms.
FNMA
(Fannie Mae) Contains information on the purchase process.
Steps in the Process
of a VA Home Loan
There are five basic
steps when obtaining a VA backed home loan. Although there are lots of
details within each step and some may overlap, here is a basic overview
of how the process works.
1. The veteran selects
a home they are interested in. The purchase and sales agreement should
contain a VA option clause. Sample wording for a VA option clause:
"It is expressly agreed that, notwithstanding any other provisions
of this contract, the purchaser shall not incur any penalty by forfeiture
of earnest money or otherwise or be obligated to complete the purchase
of the property described herein, if the contract purchase price or
cost exceeds the reasonable value of the property established by the
Department of Veterans Affairs. The purchaser shall, however, have the
privilege and option of proceeding with the consummation of this contract
without regard to the amount of the reasonable value established by
the Department of Veterans Affairs."
The contract must also allow the veteran to "escape" from
the contract without penalty if he/she is unable to obtain a VA loan.
Some
veterans prefer to contact a lender to get "pre-qualified"
(see how much they can afford) prior to searching for a home. Veterans
may also apply for a certificate of eligibility prior to looking for
a home or contacting a lender. Please review our site for information
on certificates of eligibility and a listing of lenders.
2. Contact a Lender to apply for the loan. At this point, if the veteran
has not already obtained his/her certificate of eligibility, they will
need to. The lender may be able to obtain it off the internet or the
veteran may have to complete a form and send it to the appropriate eligibility
center. In either case the lender will be able to assist in the procedures
of how to obtain a certificate of eligibility. The lender will complete
a loan application and gather supporting documentation, ie. paystubs
and bank statements. An important items for veterans to know is that
lenders set their own interest rates, discount points and closing costs.
3. The lender will "process" (develop) all credit and income
information. Lenders are allowed to use VA approved automated underwriting
systems. The lender will also order a VA appraisal. VA's appraisal is
not a home inspection or a guaranty of value. It is an estimate of the
market value as of the date the inspection is made comparing it to similar
homes that have recently sold in that area. Although the appraiser does
look for obviously needed repairs, VA does request that appraisers not
address cosmetic items. VA does not warrant the condition of existing
homes. The appraiser is a licensed individual who does not work for
VA but is chosen by VA to assure his/her review is unbiased in any way.
The lender can not request which appraiser to use, they are assigned
on a rotation basis.
4.
Upon receipt of the appraisal and all supporting documentation on credit,
income and assets, the lender will "underwrite" the loan.
It is the lender who reviews all the data collected and decides if the
loan should be granted, developed for additional data or if the veteran
does not qualify and must be denied. Although VA does "underwrite"
some loans, it is very rare. The decision on whether or not to approve
the loan is generally made by the lender.
5.
The final step for loans that meet VA regulations and guidelines is
the loan "closing" (when the transfer actually takes place.)
The lender chooses the title company, attorney or if their representative
will conduct the closing. The title company, attorney or lender representative
who will handle the closing will coordinate the date and time. If there
are any questions during the process that the lender can not assist
you with, please contact a VA representative.
Information
on the Home Loan Program
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This page has been
accessed
since February
16, 2003.
Reviewed/Updated: April 29, 2003
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