VA Home Loans
VA,
also known as the Department of Veteran Affairs, offers to qualifying
current and ex-members of the Armed Forces (to include the Reserves and
National Guard) guaranteed mortgages up to 100% of the value of the
property they are purchasing. Based upon a person's "eligibility", home
loan amounts can be as high as $240,000.
VA
home loans are fixed rate mortgages with terms of either 15 or 30 years.
Since the VA guarantees the mortgage, there is no mortgage insurance.
However, the VA requires the borrower to pay a funding fee ranging from
0.5% to 3% for the mortgage (this fee is waived for qualifying disabled
veterans). In addition, VA home loans are fully assumable by a
qualifying borrower.
The
main advantage of VA home loans is that the borrower can finance 100% of
the value of the property and wrap the funding fee into the loan. In
addition, there is no mortgage insurance which further adds to the
savings for the borrower. Rates are comparable to other conforming home
mortgages and the seller can pay 100% of the borrower's closing costs.
The
only distinct disadvantage of a VA home loan is the initial funding fee.
If wrapped into the loan and the borrower decides to finance 100% of the
value, then they are instantly "upside down" on the property, meaning
they owe more than they purchased it for. In addition, the borrower may
only take out a VA home loan with a spouse or another qualifying
co-borrower (non-military or non-exmilitary co-borrowers are not allowed
on VA home loans unless legally married to the borrower).
The following are highlights of this program:
Down payment requirements:
Since this mortgage is guaranteed by VA, the minimum down payment
required is 0% of the sales price. Veterans are allowed to put money
down on the purchase (which subsequently reduces the required funding
fee). No cash reserves are required.
Income and employment:
There are no limitations placed upon income requirements. As for
employment, there are no limitations on a specific length of time at a
particular job. However, a 2 year history is required, preferably in
the same line of work (education can be counted towards this 2 year
history if it is for the same profession the borrower is currently in).
Eligible properties and occupancy requirements:
VA home loans are restricted to single family residences that are new,
under construction, or existing (i.e. resale properties), condominiums,
and townhomes. Homes located in a PUD (planned urban development) must
be approved by VA. Also, mobile homes with a permanent foundation,
taxed as real property, and built after June 16, 1976 are eligible. All
VA guaranteed properties must be owner-occupied and located in the
United States.
Closing Costs:
VA has created a
list of allowable and non-allowable closing costs
that may be charged to the home buyer. Non-allowable closing costs
generally are referred to as "garbage fees" or "junk fees" and include
costs such as the lender's tax service or document preparation fees.
Qualifying ratios:
VA does not limit a borrower's monthly payment as in the case of many
mortgage loan programs. However, a borrower's total debt (proposed
monthly payment plus monthly payments towards credit cards, student
loans, car payments, and other installment and revolving credit) cannot
exceed 41% of their gross monthly income.
Mortgage Insurance Premium:
VA home loans do not have mortgage insurance premiums. However, the VA
does require a funding fee assessed with each VA loan (unless you are a
qualifying disabled veteran).
Assumability:
Yes. The person assuming the loan must credit qualify for the mortgage
and the seller is automatically released from liability with the
approval of the lender.
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