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VA Loans

 

 

What is a VA Loan?

In 1944 President Franklin D. Roosevelt signed into law the Servicemen's Readjustment Act, also known as the GI Bill. Realizing that most Veterans had little to no savings with which to make a down payment, part of the act created what we commonly refer to today as the Veterans’ Administration Loan (VA loan). Just as it insures part of each FHA loan, the government fully guarantees every VA loan. The result is a loan program in which eligible Veterans are not required to make any down payment when purchasing an eligible property, and provides a streamlined process when refinancing existing VA loans. Again, just like FHA loans, the government does not set interest rates or directly lend money for VA loans. VA loans are made to eligible Veterans by lenders such as banks and mortgage companies. The lender is protected against loss if the loan defaults. Depending on the program option, the loan may or may not default.

Homebuyers pay a one-time VA Funding Fee that is financed into the loan at purchase. Unlike FHA loans, Veterans pay NO MONTHLY MORTGAGE INSURANCE. The Veterans’ Administration guarantees the loan case the homeowner defaults. Lenders pass on the reduced risk of the fully guaranteed VA loans in the form of more flexible underwriting guidelines and requirements as compared to a conventional loan. VA home loans are available in all 50 states and on most types of properties.

The result of this is that Veterans who might otherwise be excluded from the conventional mortgage loan market can realize the dream of homeownership under terms that recognize the incalculable contributions and sacrifices made by Veterans and their families.

 

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What Type of Home Can I Buy with a VA Loan?

A VA home loan must be used to finance your personal residence within the United States and its territories. You have choices for the type of home you purchase:

  • Existing Single-Family Home
  • Townhouse or Condominium in a VA-Approved Project
  • New Construction Residence
  • Manufactured Home or Lot
  • Home Refinances (including Energy-Efficent Mortgages [see below])

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Who is Eligible for a VA Loan?

Persons interested in a VA loan should contact their Regional VA Office for eligibility verification and to receive guidance on obtaining a Certificate of Eligibility.

Wartime/Conflict Veterans

  • Veterans who were NOT Dishonorably Discharged, and served at least 90 days
  • World War II – September 16, 1940 to July 25, 1947
  • Korean Conflict – June 27, 1950 to January 31, 1955
  • Vietnam Era – August 5, 1964 to May 7, 1975
  • Persian Gulf War - Check with the Veterans’ Administration Office
  • Afghanistan & Iraq – Check with the Veterans’ Administration Office

Peacetime Service

  • At least 181 days of continuous active duty with no dishonorable discharge. If you were discharged earlier due to a service-related disability you should contact your Regional VA Office for eligibility verification.
  • July 26, 1947 to June 26, 1950
  • February 1, 1955 to August 4, 1964, or May 8, 1975 to September 7, 1980 (Enlisted), or to October 16, 1981 (Officer)
  • Enlisted Veterans whose service began after September 7, 1980, or officers who service began after October 16, 1981, must have completed 24-months of continuous active duty and been honorably discharged

Reserves and National Guard

  • Certain U.S. Citizens who served in the Armed Forces of a government allied with the United States during World War II
  • Surviving spouse of an eligible Veteran who died resulting from service, and has not remarried
  • The spouse of an Armed Forces member who served Active Duty, and was listed as a POW or MIA for more than 90-days

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What are the Benefits of a VA Loan?

  • VA Home Purchase Loans
  • Credit scores as low as 580
  • Option for no down payment
  • Qualification is easier than a conventional loan
  • Competitive rates and no mortgage insurance premiums may mean lower monthly payments than conventional loans.
  • Low to no reserve requirements
  • VA Jumbo with loan amounts as high as $1.5 million
  • Variety of fixed- and adjustable-rate loan options
  • No prepayment penalties
  • Seller or lender may contribute to veteran's closing costs
  • Take up to an additional $6,000 for improving the energy efficiency of the home, at time of purchase or when doing a streamline refinance (see below).
  • Can be combined with additional down payment assistance to reduce closing costs

 

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VA Home Refinance Loans

The benefits that veterans enjoy when purchasing a home (see above) also apply when refinancing, but the process of refinancing a VA loan is much simpler. The VA Interest Rate Reduction Refinance Loan (IRRRL [pronounced "Earl"]) is a streamlined process that allows veterans to refinance a home loan with minimal documentation and no appraisal.

The VA IRRRL EEM (Energy-Efficient Mortgage) programs uses the same streamlined process, and allows veterans to use (up to) an additional $6,0001 to increase the comfortability and value of their homes by investing in upgrades and improvements featuring today's cutting-edge technology. 

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What Are the Disadvantages of a VA Loan?

VA LOANS MADE PRIOR TO MARCH 1, 1988 can be assumed with no qualifying of the new buyer. If the person who assumed the loan defaults (doesn’t pay), the Veteran homeowner could be responsible for repayment of the loan. Any VA loan made on or after March 1, 1988 requires approval by the lender and the VA of the person assuming the loan, so this is not an issue for newer VA loans.

Some sellers are hesitant to work with someone obtaining a VA Loan because it takes longer than a conventional loan to process.

Sellers are often asked to pay a portion of closing costs, and might therefore be less likely to negotiate the sales price of the home.

No down payment at time of purchase can result in very little to no equity in the property in the early years following purchase. Because there can be substantial costs to a home seller, having little to no equity could make selling the home difficult.

VA loans can only be used to acquire a property that will be occupied by the Veteran (and, of course, his or her family). VA loans may NOT be used to purchase rental, rehab, or other investment properties. 

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How Do I Apply for a VA Loan?

You can apply for a VA Loan with any mortgage lender that participates in the program. In addition to the application requirements from your lender, you will need the following at application time:

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If I Have Already Obtained One VA Loan, Can I Get Another One?

Your eligibility is reusable depending on the circumstance. If you have paid-off your prior VA Loan, and disposed of (sold) the property, you can have your eligibility restored for use again. Also, on a one-time basis, you may have your eligibility restored if your prior VA Loan has been paid-off but you still own the property. Either way, the Veteran must send a completed VA Form 16-1880 the Veterans Administration’s VA Eligibility Center. To prevent delays in processing, it's advisable to include evidence that the prior loan has been fully paid, and, if applicable, that the property was disposed of (sold). A paid-in-full statement from the former lender or a copy of the HUD-1 settlement statement must also be submitted. 

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