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VA Home Loans

Reprinted from PN August 2012

Does the Department of Veterans Affairs offer mortgage loans?

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Question: I was recently discharged from active duty and looking into purchasing a house. Can Veterans Affairs (VA) provide me with a mortgage loan?

Answer: VA has a program titled Loan Guaranty. It does not give you an actual loan, but it does provide the following: 

This program is available to assist servicemembers, veterans, reservists, and certain surviving spouses. Loan Guaranty is to help protect lenders from loss if the eligible borrower (you) fails to repay the loan. This gives lenders an incentive to make loans, since it minimizes their risk of loss. 

It also lessens closing costs and can eliminate the need for mortgage insurance as well as for a down payment. 

The loan can be used to:

(1)  Buy or build a home

(2) Buy a residential condominium

(3) Buy a residential cooperative  housing unit

(4) Repair, alter or improve a home owned and occupied by the borrower

(5) Refinance an existing loan

(6) Buy a manufactured home and/or lot

(7) Install solar heating or cooling system or other energy-efficient improvements

Applying

Applicants must apply for a Certificate of Eligibility (COE) from VA. You can do this by completing VA Form 26-1880,  “Request for a Certificate of Eligibility.” This can be obtained by your Paralyzed Veterans of America (PVA) service officer. He or she will also get the form to the right people.

You need to include a copy of your DD214 or Report of Discharge from the military. A photocopy is acceptable.

For those inclined to do it electronically, you can go to benefits
.va.gov/homeloans/elig_center.asp. Please be aware this can only be successfully accomplished if VA already has sufficient data in its database to identify you as an eligible person. 

In addition, you must meet good credit ratings as determined by your credit scores.

Eligibility

You are eligible if you were discharged under other than dishonorable conditions and your service falls within any of the following categories:

World War II: (1) Active duty service after Sept. 15, 1940, and prior to July 26, 1947; (2) at least 90 days total service, unless discharged early for a service-connected disability.

Post-World War II: (1) Active duty service after July 25, 1947, and prior to June 27, 1950; (2) 181 days continuous active duty service, unless discharged early for a service-connected disability.

Korean War: (1) Active duty after June 26, 1950, and prior to Feb. 1, 1955; (2) at least 90 days total service, unless discharged early for a service-connected disability.

Post-Korean War: (1) Active duty after Jan. 31, 1955, and prior to Aug. 5, 1964; (2) 181 days continuous service, unless discharged early for a service-connected disability.

Vietnam War: (1) Active duty after Aug. 4, 1964, and prior to May 8, 1975; (2) 90 days total service, unless discharged early for a service-connected disability. (For veterans who served in the Republic of Vietnam, the beginning date is Feb. 28, 1961.)

Post-Vietnam: (1) Active duty after May 7, 1975, and prior to Aug. 2, 1990; (2) active duty for 181 continuous days, all of which occurred after May 7, 1975; and (3) early discharge for service-connected disability.

24-Month Rule: If service was between Sept. 8, 1980 (Oct. 16, 1981, for officers) and Aug. 1, 1990, veterans must generally complete 24 months of continuous active duty service or the full period (at least 181 days) for which they were called or ordered to active duty, and be discharged under conditions other than dishonorable.

Exceptions are allowed if the veteran completed at least 181 days of active duty service but was discharged earlier than 24 months for (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) service-connected disability.

Gulf War: Veterans of the Gulf War era, Aug. 2, 1990 to a date to be determined, must generally complete 24 months of continuous active duty service or the full period (at least 90 days) for which they were called to active duty, and be discharged under other than dishonorable conditions.

Exceptions are allowed if the veteran completed at least 90 days of active duty but was discharged earlier than 24 months for (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) service-connected disability. Reservists and National Guard members are eligible if they were activated after Aug. 1, 1990, served at least 90 days, and received an honorable discharge.

Active Duty: Until the Gulf War era is ended, individuals on active duty are eligible after serving 90 continuous days.

Reserve or National Guard: Reservists or National Guard are eligible if they have completed six years of honorable service in the reserves or national guard, are mobilized for a period of active duty of at least 90 days, or are discharged for a service-connected disability.

Loan Amounts

The VA Loan Guaranty amount varies with the size of the loan and the location of the property.

Since lenders are able to obtain this guaranty from VA, borrowers do not need to make a down payment as stated above, provided they have enough home loan entitlement.

VA will guarantee 25% of the principal loan amount, up to the maximum guaranty. The maximum guaranty varies, depending upon the location of the property.

For all locations in the United States other than Alaska, Guam, Hawaii, and the U.S. Virgin Islands, the maximum guaranty is the greater of 25% of (a) $417,000 or (b) 125% of the area median price for a single-family residence, but in no case will the guaranty exceed 175% of the Freddie Mac loan limit for a single-family residence in the county in which the property securing the loan is located.

This translates to a potential loan amount of  more than $1 million with no down payment for the period of Jan. 1, 2011 through Sept. 30, 2011.

In Alaska, Guam, Hawaii, and the U.S. Virgin Islands, the maximum guaranty is the greater of 25% of (a) $625,500 or (b) 125% of the area median price for a single-family residence, but in no case will the guaranty exceed 175% of the Freddie Mac loan limit for a single-family residence in the county in which the property securing the loan is located. This translates to a potential loan amount in excess of $1.6 million for the period of Jan. 1, 2011, through Sept. 30, 2011.

The VA funding fee, and up to $6,000 of energy-efficient improvements, can be included in VA loans. Other closing costs must be paid by the veteran, except most costs can be included in refinancing loans.

An eligible borrower can use a VA-guaranteed Interest Rate Reduction Refinancing Loan to refinance an existing VA loan to lower the interest rate and payment. Typically, no credit underwriting is required for this type of loan. The loan may include the entire outstanding balance of the prior loan, the costs of energy-efficient improvements, as well as closing costs, including up to two discount points.

An eligible borrower who wishes to obtain a VA-guaranteed loan to purchase a manufactured home or lot can borrow up to 95% of the home’s purchase price. The amount VA will guarantee on a manufactured home loan is 40% of the loan amount or the veteran’s available entitlement, up to a maximum amount of $20,000. These provisions apply only to a manufactured home that will not be placed on a permanent foundation.

Fees

You may have some closing costs to pay when you sign the loan.

All veterans are charged a VA funding fee, unless you are receiving VA compensation. You are also required to occupy the property.

You will be required to have the property appraised. The lender can request an appraiser through VA systems. You are responsible for paying for the appraisal. This is not an inspection and does not guarantee the house is free of defects. VA is guaranteeing the loan, not the property.

Payment Trouble

There is help if you happen to run into financial difficulty.

The first step is to contact your lender to see what options they might be able to provide. If you cannot obtain relief through the lender and your loan becomes delinquent, VA provides supplemental servicing assistance to help resolve the problem. If the lender is unable to help, VA has loan technicians in eight Regional Loan Centers and two special servicing centers who can intercede with the lender to explore options to avoid foreclosure.  Call 877-827-3702 to reach the nearest VA office.

Rates and fees can vary between lenders, so shop for the best deal.  

To locate your nearest PVA national service officer, see the list elsewhere on this website. For more information, visit pva.org or call the PVA Veterans Benefits Department, 800-424-8200.  

 

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