|
VA loans offer the following
important advantages over most conventional loans:
- Ensure that all veterans are given
an equal opportunity to buy homes with VA assistance, without regard to their race, color,
religion, sex, handicap, familial status or national origin.
- No downpayment (unless required by
the lender, the purchase price is more than the reasonable value of the property as
determined by VA, or the loan is made with graduated payment features);
- A negotiable fixed interest rate
competitive with conventional mortgage interest rates;
- The buyer is informed of the
estimated reasonable value of the property;
- Limitations on closing costs;
- An assumable mortgage. However, for
loans closed on or after March 1, 1988, the assumption must be approved in advance by the
lender or VA. Generally, this involves a review of the creditworthiness of the purchaser
(ability and willingness to make the mortgage payments). Be sure to see the section
entitled "Loan Repayment Terms";
- Long amortization (repayment) terms:
- Right to prepay without penalty
(lenders may require that any partial prepayments be in the amount of at least 1 monthly
installment of principal or $100, whichever is less);
- For houses inspected by VA during
construction, a warranty from the builder and VA assistance in trying to obtain the
builder's cooperation in correcting any justified construction complaint.
- Forbearance (leniency) extended to
worthy VA homeowners experiencing temporary financial difficulty.
- The VA
appraisal is NOT intended to be and "inspection" of the property. If you have
any doubts about the condition of the house, it is in your best interest to seek expert
advice BEFORE you legally commit yourself in a purchase agreement. Most sellers will
permit you, at your expense, to arrange for an inspection by a qualified residential
inspection service and negotiate with you concerning repairs to be included in the
purchase agreement. Such action can prevent later problems, disagreements and
disappointments. Remember, VA guarantees only the loan, NOT the condition of the property.
It is your responsibility to be an informed buyer and assure yourself that what you are
buying is satisfactory to you in all respects.
- If you have a home built, VA cannot
compel the builder to correct construction defects or otherwise live up to the contract.
VA authority is limited to suspension of the builder from participation in the VA Loan
Guaranty program.
- VA cannot guarantee that you are
making a good investment, or that you can resell the house at the price you paid.
- VA does not have authority to
provide you with legal services.
To get a VA loan, the law requires
that:
- You must be an eligible veteran who
has available home loan entitlement (except in the case of an interest rate reduction
refinancing loan.
- The loan must be for an eligible
purpose;
- You must occupy or intend to occupy
the property as your home within a reasonable period of time after closing the loan;
- You must have enough income to meet
the new mortgage payments on the loan, cover the costs of owning a home, take care of
other obligations and expenses, and still have enough income left over for family support
(a spouse's income is considered in the same manner as the veteran's); and
- You must have a good credit record.
VA guaranteed loans are made by
private lenders such as banks, savings and loan associations, or mortgage companies. To
get a loan, you apply to the lender. If the loan is approved, VA guarantees the loan when
it is closed. The guaranty means the lender is protected against loss if you or a later
owner fails to repay the loan.
Questions and Answers
1. How much is the guaranty?
VA will guarantee up to 50 percent
of a home loan up to $45,000. For loans between $45,000 and $144,000, the minimum guaranty
amount is $22,500, with a maximum guaranty, of up to 40 percent of the loan up to $36,000,
subject to the amount of entitlement a veteran has available. For loans of more than
$144,000 made for the purchase or construction of a home or to purchase a residential unit
in a condominium or to refinance an existing VA guaranteed loan for interest rate
reduction, the maximum guaranty is 25 percent up to $50,750.
2. Is $36,000 the biggest loan a
veteran can get?
No. You may generally borrow up to
the reasonable value of the property or the purchase price, whichever is less, plus the
funding fee, if required. For certain refinancing loans, the maximum loan is limited to 90
percent of the value of the property, plus the funding fee, if required. To determine the
reasonable value, VA requires an appraisal of the property.
3. What is the maximum VA loan?
Although there is no maximum VA
loan (limited only by the reasonable value or the purchase price), lenders generally limit
the maximum VA loan to $203,000 because most VA loans are sold in the secondary market,
which limits VA loans to that amount.
4. Is a guaranteed loan a gift?
No. It must be repaid, just as you
must repay any money you borrow. The VA guaranty, which protects the lender against loss,
encourages the lender to make a loan with terms favorable to the veteran. But if you fail
to make the payments you agreed to make, you may lose your home through tore closure, and
you and your family would probably lose all the time and money you had invested in it, i
the lender does take a loss, VA must pay the guaranty to the lender, and the amount paid
by VA must be repaid by you. If your loan closed on or after January 1, 1990, you will owe
the Government in the event of a default only if there was fraud, misrepresentation, or
bad faith on your part.
5. Does VA make any loan
directly to eligible veterans?
Yes, but only to Native Americans
on trust land or to supplement a grant to get a specially adapted home for certain
eligible veterans who have a permanent and total service-connected disability(ies). See VA
Pamphlet 26-93-1 for information concerning direct loans to Native American Veterans. See
VA Pamphlet 26-69-1 for information concerning specially adapted housing grants.
You are eligible for VA financing
if your service falls within any of the following categories:
Wartime Service. If you
served any time during
- 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), or
- Persian Gulf War (August 2, 1990 to
present (requires service for 2 years or the full period for which called to active duty,
except that exceptions applying to service between September 7, 1980 and August 1, 1990
also apply to Persian Gulf War. See next page.)),
you must have served at least 90
days on active duty and been discharged or released under other than dishonorable
conditions. If you served less than 90 days, you may be eligible if discharged because of
a service-connected disability.
Peacetime Service. If your
service fell entirely within any one of the following periods:
- July 26, 1947 to June 26,1950,
- February 1, 1955 to August 4, 1964,
or
- May 8, 1975 to September 7, 1980 (if
enlisted) or to October 16, 1981 (if officer),
you must have served at least 181
days of continuous active duty and been discharged or released under conditions other than
dishonorable. If you served less than 181 days, you may be eligible if discharged because
of a service-connected disability.
Service between September 7,
l980 (enlisted) or October 16,1981 (officer) and August 1, 1990.
If your entire period of service
was between 9/7/80 (10/16/81) and 8/1/90, you must have:
- Completed 24 months of continuous
active duty or the full period (at least 181 days) for which you were called or ordered to
active duty, and been discharged or released under conditions other than dishonorable.
- You may also be determined eligible
if you were discharged for a service-connected disability, or you were discharged for the
convenience of the government after completing at least 20 months of a 2-year enlistment,
- or you completed 181 days of active
duty and:
- were discharged because of a
hardship, or
- were determined to have a service
connected, compensable disability, or
- were discharged or released from
active duty for a medical condition which preexisted service and has not been determined
to be service connected, or
- received an involuntary discharge or
release from active duty for the convenience of the Government as a result of a reduction
in force, or
- were discharged or released from
active duty for a physical or mental condition not characterized as a disability and not
the result of misconduct but which did interfere with your performance of duty.
Note: During the Persian Gulf War,
the foregoing exceptions to the 2-year requirement apply, except that 90 days of active
duty is sufficient in lieu of 181 days.
Active Duty Service Personnel.
If you are now on active duty, you are eligible after having served on continuous active
status for at least 90 days. When an ending date is established for Persian Gulf War
service, a minimum of 181 days of continuous active duty will be required for persons who
did not have wartime service.
Members of the Selected Reserve.
Individuals who are not otherwise eligible and who have completed at least 6 years in
the Reserves or National Guard, or been discharged because of a service-connected
disability, and (1) have been discharged under honorable conditions, or (2) have been
placed on the retired list, or (3) have been transferred to an element of the Ready
Reserve other than the Selected Reserve, or (4) continue to serve in the Selected Reserve
are eligible for a GI loan. (Eligibility for members of the Selected Reserve expires
September 30, 2007.)
Other Types of Service
- Certain United States citizens who
served in the armed forces of a government allied with the United States in World War II.
- Unremarried surviving spouses of the
above described eligible persons who died as the result of service or service-connected
injuries. (Children of deceased veterans are not eligible.)
- The spouse of any member of the
Armed Forces serving on active duty who is listed as missing in action, or is a prisoner
of war and has been so listed for a total of more than 90 days.
- Individuals with service as members
in certain other organizations, services, programs and schools may also be eligible.
Questions about whether this service qualifies for home loan benefits should be referred
to the Loan Guaranty Division of the nearest VA regional office.
Obtaining
a Certificate of Eligibility
VA determines your eligibility and,
if you are qualified, VA will issue you a certificate of eligibility to be used in
applying for a VA loan.
Should you need to request a
certificate from VA, you must complete VA
Form 26-1880, Request For A Certificate of Eligibility For VA Home Loan Benefits and
submit it to one of our VA Eligibilty
Centers along with acceptable proof of service as described on the
instruction page of the form.
Questions and Answers ...
1. What service is not eligible?
You are not eligible for VA
financing based on the following:
- World War I service.
- Active Duty for Training in the
Reserves.
- Active Duty for Training in the
National Guard (unless "activated" under the authority of title 10, U.S. Code).
2. Does this kind of service
provide entitlement to any other veterans' home loan benefit?
Yes. World War I and Active e Duty
for Training service may quality you for a HUD/FHA veterans'
loan.
Under the National Housing Act loan
program, the Federal Housing Administration of the Department of Housing and Urban
Development administers a loan program for veterans. Financing under this program is
available under slightly more favorable terms than those available to non veterans: VA's
only role in this program is to determine the eligibility of the veteran and, if
qualified, issue a Certificate of Veteran Status as evidence of entitlement to HUD/FHA
loan benefits for veterans.
You may get a Certificate of
Veteran Status by completing VA Form 26-8261a, Request for Certificate of Veteran Status,
and submitting it with the attachments listed in the instructions to any VA regional
office or center for a determination of eligibility.
All veterans discharged under other
than dishonorable conditions from at least 90 days of service which began before September
8, 1980, are eligible. Veterans of enlisted service in a regular component of the Armed
Forces, which began a her September 7, 1980, or officers or reservists who entered on
active duty after October 13, 1982, must have served at least 24 months of service or the
full period for which called to active duty or Active Duty for Training before being
discharged, unless the discharge was for hardship or disability.
3. What can a veteran do who has
lost his or her original discharge papers and does not have a legible copy?
The veteran should obtain a
Certificate in Lieu of Lost or Destroyed Discharge. Any VA Veterans Benefits Counselor at
the nearest VA office will assist a veteran in obtaining necessary proof of military
service.
4. Does a veteran's home loan
entitlement expire?
No. Home loan entitlement is
generally good until used. However, the eligibility of service personnel is only available
so long as they remain on active duty. If they are discharged or released from active duty
before using their entitlement, a new determination of their eligibility must be made,
based on the length of service and the type of discharge received. Note: Eligibility for
members of the Selected Reserve expires September 30, 2007.
5. How much entitlement does
each veteran have?
Originally, the maximum entitlement
available was $2,000; however, legislation enacted since that time has provided veterans
with increases in entitlement up to the present maximum of $36,000 (or up to $50,750 for
certain loans over $144,000). The $36,000 may, however, be reduced if entitlement has been
used before to get a VA loan. The amount of remaining entitlement can be determined by
subtracting the amount of entitlement used from the current maximum available entitlement
of $36,000. (See question 8 below for information on using remaining entitlement.)
6. Does VA home loan entitlement
provide cash to the veteran?
No. The amount of entitlement
relates only to the amount VA will guarantee the lender against loss.
7. Can a veteran get used
entitlement back to use again?
If you have used all or part of
your entitlement, you can get that entitlement back to purchase another home if the
following conditions for "restoration" are met:
- The property has been sold and the
loan has been paid in full, or
- A qualified veteran-transferee
(buyer) must agree to assume the outstanding balance on the loan and agree to
"substitute" his or her entitlement for the same amount of entitlement you
originally used to get the loan. The buyer must also meet the occupancy and income and
credit requirements of the law.
- ONE TIME ONLY if you have repaid the
prior VA loan in full, but have not disposed of the property securing that loan, the
entitlement you used in connection with that loan may be restored.
Restoration of entitlement is not
automatic. You must apply for it by completing and returning VA Form 26-1880 to any VA
regional office or center. Application forms for substitution of entitlement may he
requested from the VA office that guaranteed the loan.
8. If the requirements for
restoration cannot be met, is there any other way a veteran can obtain another VA loan?
Yes. Veterans who had a VA loan
before may still have "remaining entitlement" to use for another VA loan. The
current amount of entitlement available to each eligible veteran is $36,000 ($50,750) for
certain loans over $144,000). This was much lower in years past and has been increased
over time by changes in the law. For example, a veteran who obtained a $25,000 loan in
1974 would have used $12,500 guaranty entitlement, the maximum then available. Even if
that loan is not paid off, the veteran could use the $23,500 difference between the
$12,500 entitlement originally used and the current maximum of $36,000 to buy another home
with VA financing.
Most lenders require that a
combination of the guaranty entitlement and any cash down payment must equal at least 25
percent of the reasonable value or sales price of the property, whichever is less. Thus,
in the example, the veteran's $23,500 remaining entitlement would probably meet a lender's
minimum guaranty requirement for a no downpayment loan to buy a property valued at, and
selling for, $94,000. The veteran could also combine a down payment with the remaining
entitlement for a larger loan amount.
9. May several veterans use
their entitlement to acquire property together?
Yes. The guaranty is based on each
veteran s interest in the property, but the guaranty on the loan may not exceed the lesser
of 40 percent of the loan amount or $36,000 ($50,750 for certain loans over $144,000).
10. If both a husband and wife
are eligible, may they acquire property jointly and so increase the amount which may be
guaranteed?
They may acquire property jointly,
but the amount of guaranty on the loan may no exceed the lesser of 40 percent of the loan
amount or $36,000 ($50,750 for certain loans over $144,000).
11. May a veteran join with a
non veteran in obtaining a VA loan?
Yes, but the guaranty is based only
on the veteran's portion of the loan. The guaranty cannot cover the nonveteran's part of
the loan. This does not apply to a loan to a veteran and spouse when the spouse is not a
veteran. (Consult lenders to determine whether they would be willing to accept
applications for joint loans of this type.)
12. Does the issuance of a
certificate of eligibility guarantee approval of a VA loan?
No. The veteran must still be found
to be qualified for the loan from an income and credit standpoint.
You may use VA-guaranteed
financing:
- To buy a home.
- To buy a townhouse or condominium
unit in a project that has been approved by VA.
- To build a home.
- To repair, alter, or improve a home.
- To simultaneously purchase and
improve a home.
- To improve a home through
installment of a solar heating and/or cooling system or other energy efficient
improvements.
- To refinance an existing home loan.
- To refinance an existing VA loan to
reduce the interest rate and add energy efficiency improvements.
- To buy a manufactured (mobile) home
and/or lot.
- To buy and improve a lot on which to
place a manufactured home which you already own and occupy.
- To refinance a manufactured home
loan in order to acquire a lot.
(See VA Pamphlet 26-71-1 for more
information about VA manufactured home loans.)
Questions and Answers
1. Can a veteran get a VA loan
to pay off the mortgage or other liens of record on his or her home?
Yes. The following refinancing
loans are available under the VA guaranteed home loan program:
a. To pay off the mortgage and/or
other liens of record on the home. In most cases, the loan may not exceed 90 percent of
the reasonable value of the property as determined by an appraisal, plus the funding fee,
if required. The loan may include funds for any purpose which is acceptable to the lender,
plus closing costs, including a reasonable number of discount points. A veteran must have
available home loan entitlement. An existing loan on a manufactured home (except as noted
below) may not be refinanced with a VA guaranteed loan.
b. To refinance an existing VA loan
to obtain a lower interest rate. Use of additional loan entitlement is not required. The
loan amount is limited to the balance of the old loan plus the closing costs, discount
points, funding fee, and up to $6,000 in energy efficient improvements. An existing VA
loan on a manufactured home may be refinanced to obtain a lower interest rate.
2. Can a veteran get a VA
business loan?
No. but business loans may be
obtained through the SBA
(Small Business Administration). The SBA gives preference to veterans wishing to
obtain small business assistance. For more information on this financing, consult your
telephone directory for the SBA office nearest you.
3. Can a veteran get a VA farm
loan?
No, except for a farm on which
there is a farm residence which will be personally occupied by the veteran as a home. The
veteran may or may not conduct farming operations. If farming operations are to be the
primary source of the borrower's income, then it must be established that the venture has
a reasonable likelihood for success. If the borrower plans to use the residence, but has a
source of income other than the farm which will be the primary source of income, then the
farming operations need not be considered. Other types of farm financing may be obtained
through the Farmers Home Administration which gives preference to veteran applicants.
Additional information can be obtained by contacting a local office of that agency, the
address and telephone number of which can be found in your telephone directory.
4. Can a veteran get a VA loan
to buy or construct a residential property containing more than one family unit?
Yes, but the total number of
separate units cannot be more than four if one veteran is buying. If more than one veteran
is buying, then one additional family unit may be added to the basic four for each
veteran participating; thus, one veteran could buy four units; two veterans, six units;
three veterans, seven units, etc.
In addition, if the veteran must
depend on rental income from the property to qualify for the loan, the veteran must
(a) show that he or she has the background or qualifications to be
successful as a landlord, and (b) have enough cash reserves to make the loan payments for
at least 6 months without help from the rental income.
5. Can a veteran get a VA loan
to purchase a cooperatively owned apartment?
Generally not. Statutory lien
requirements, and the fact that all or almost all of the members of the cooperatively
owned apartment must be veterans who are using their entitlement, have presented
considerable difficulties in obtaining VA financing for these purchases.
6. Can a veteran obtain a VA
loan for the purchase of property in a foreign country?
No. The property must be located in
the United States, its territories, or possessions. The latter consist of Puerto Rico,
Guam, Virgin Islands, American Samoa and Northern Mariana Islands.
7. Can a veteran obtain a loan
from a private lender in one State for the purchase of property in another State?
Yes. However, many lenders limit
their lending operations to certain areas.
8. May a lender require security
from the veteran in addition to the property being purchased?
Yes. This is a matter between the
veteran and the lender. While VA does not require that additional security be taken, it
does not object if the veteran is willing.
VA-guaranteed loans are obtained by
making application to private lending institutions.
Lenders may be found by asking in
the community in which you live what firms in the area make home loans. This information
may be obtained from the local chamber of commerce, by looking in the telephone directory
under "Mortgages," or by inquiring at banks, savings and loan associations,
mortgage companies, real estate brokers' offices, and other public and private lending
agencies. The local VA regional office will also provide a list of lenders who are active
in the program.
Most mortgage lenders will have the
forms and other necessary papers to apply for a certificate of eligibility and for the
loan and will help you fill them out. Any lender who does not have the forms may obtain
them from the nearest VA regional office.
If you have a certificate of
eligibility, you should present it to your lender when making your loan application,
because the lender will want assurance that you are eligible before accepting the
application. However, a lender will undoubtedly discuss the possibility of making a VA
loan to you without seeing the certificate. In fact, many lenders will assist you in
applying for a certificate of eligibility. So, even if you have not obtained a
certificate, you should not delay making an application to a lender for a loan just for
this reason.
To reduce delays in the processing
of the loan, you should be prepared to give the lender the complete names and addresses
and your employee identification numbers for present and past employers covering a 2 year
period. You should also have available the location and account numbers for savings and
checking accounts and all open and recently closed debts and obligations.
Questions and Answers
1. If a lender is unwilling to
accept a veteran's application for a loan, what should the veteran do?
The veteran should see another
lender. The fact that one lender is not interested in making the loan the veteran wants
does not mean that other lenders will not make the loan.
2. How are VA loans processed?
There are two ways a lender may
process VA home loans-on a "priorapproval' or "automatic" basis.
When the loan is processed on a
prior approval basis, the lender takes your application, requests VA to appraise the
property, and verifies your income and credit record. All this information is put together
in a loan package and sent to VA for review. If VA approves the loan, a commitment by VA
to guarantee the loan is sent to the lender. The lender then closes the loan and sends a
report of the closing to VA. lf the loan complies with VA requirements, VA issues the
lender a certificate of guaranty.
In automatic processing. the lender
still orders an appraisal from VA, but has the authority to make the credit
decision on the loan without VA's approval. The biggest difference between prior approval
and automatic processing is the time saved by avoiding the need to await VA's approval
before loan closing.
All lenders do not have the
authority to process loans on the automatic basis. Banks, savings and loan associations,
and certain other lenders such as mortgage companies which are approved by VA have the
privilege of processing VA guaranteed loans using the automatic procedure.
Lenders approved to participate in
VA's Lender Appraisal Processing Program (LAPP) are generally able to expedite the
processing of VA appraisals.
3. What should a veteran do
while waiting for loan approval?
Sometimes it may take longer than
you might expect for the lender or VA to process your loan application. For instance, your
current or former employer may be slow in returning an employment verification form, or it
may take some time to obtain a credit rating from out of State creditors. Occasionally,
the application VA receives from the lender is incomplete in some important aspect and
requires that VA ask the lender to furnish additional information before a final decision
can be made. Ordinarily, you should plan on an average of 4 to 6 weeks to obtain a
decision on your application.
In any case, information on the
progress of your application should be obtained from the lender, who will be most aware of
developments as they occur.
It is most important that you not
make any commitments based on an expected approval of your loan. You should not, for
example, give notice to your landlord until the loan is actually approved by VA (or by
your lender if the automatic processing procedure is used). Generally, it is not advisable
to move into the home before the loan is approved. If for some reason the loan is
not obtained, you could be faced with additional expense and inconvenience.
The maximum VA home loan term is 30
years and 32 days; however, the term ay never be for more than the remaining economic life
of the property as determined by the appraisal.
Questions and Answers
1. May a veteran pay off
a VA loan before it becomes due?
Yes. A VA loan may be partially or
fully paid at any time without penalty. Partial payments may not be less than I monthly
installment or $100, whichever is less. (Consult your lender.)
2. May the maturity on a
VA loan be extended to reduce the monthly payments?
Yes, provided the veteran and the
lender want to extend it and the extension provides for complete repayment of the loan
within the maximum period permitted for loans of its type.
3. If a veteran dies before the
loan is paid off, will the VA guaranty pay off the balance of the loan?
No. The surviving spouse or other
coborrower must continue to make the payments. If there is no coborrower, the loan becomes
the obligation of the veteran's estate. Protection against this may be obtained through
mortgage life insurance, which must be purchased from private insurance sources.
4. Will the veteran's payments
always be paid to the same company?
No. It is common practice in the
mortgage lending industry to sell mortgages, often before the first payment is even due.
If your loan is sold, you may find that you sent your first payment to the wrong place and
the new holder of your loan may send you an overdue notice. Even though you know you made
the payment, and is is up to the two lenders to get it straightened out, do not ignore the
notice. (Most lenders will notify the veteran if the loan is sold and help straighten out
any problems.)
5. Does having a VA loan
limit a veteran's right or ability to sell the property?
No. A veteran may sell the property
to a veteran or non veteran at any time. However, if the loan was closed after March
1,1988, and it will be assumed, the qualifications of the assumer must be reviewed and
approved by the lender or VA.
6. When a veteran sells
the property to someone who will assume the existing VA loan, is the veteran released
automatically from personal liability for repayment of the loan?
No. If the loan was closed after
March 1, 1988, the lender or VA must be notified and requested to approve the assumer and
grant the veteran release from liability. If the loan was closed prior to March 1, 1988,
the loan may be assumed without approval from VA or the lender. However, the veteran is
strongly urged to request a release of liability from VA.
7. If a loan closed prior to
March 1,1988 can be assumed without VA's approvals why should a veteran be concerned about
requesting and obtaining a release from personal liability?
If a veteran does not obtain a
release of liability, and VA suffers a loss on account of a default by the assumer or some
future assumer, a debt may be established against the veteran. Also, strenuous collection
efforts will be made against the veteran if a debt is established.
8. How may a veteran obtain a
release of liability from VA?
By having the buyer assume all of
the veteran's liabilities on the VA loan, and by having VA or the loan holder approve the
buyer and the assumption agreement. (If the VA loan closed prior to March 1,1988, the
application forms for a release of liability must be requested from the VA office that
guaranteed the loan. If the VA loan closed on or after March 1,1988, then the application
forms must be requested from the lender to whom the payments are made.)
9. If a veteran obtains a
release of liability, is restoration of entitlement automatic?
No. Restoration requirements may be
found on page 9.
VA will guarantee loans to purchase
homes made with the following repayment plans:
- Traditional Fixed Payment Mortgage
This type of mortgage loan calls
for equal monthly payments for the life or term of the loan. Each monthly payment reduces
a certain portion of the principal owed on the loan and pays interest accrued to date.
- GPM (Graduated Payment Mortgage)
This repayment plan provides for
smaller than normal monthly payments for the first few years (usually 5 years), which
gradually increase each year, and then level off after the end of the "graduation
period" to larger than normal payments for the remaining term of the loan. The
reduction in the monthly payment in the early years of the loan is accomplished by
delaying a portion of the interest due on the loan each month and by adding that interest
to the principal balance.
The builder of a new home or seller
of an existing home may "buy down" the veteran's mortgage payments by making a
large lump sum payment up front at closing that will be used to supplement the monthly
payments for a certain period, usually 1 to 3 years.
- GEM (Growing Equity Mortgage)!
This repayment plan provides for a
gradual annual increase in the monthly payments with all of the increase applied to the
principal balance. The annual increases in the monthly payment may be fixed (for example,
3 percent per year) or tied to an appropriate index. The increases to the monthly payment
result in an early payoff of the loan in about 11 to 16 years for a typical 30 year
mortgage.
- Traditional Fixed Payment Mortgage,
Buydown Loans, and Growing Equity Mortgage
VA does not require a down payment
if the purchase price or cost is not more than the reasonable value of the property as
determined by VA, but the lender may require one. If the purchase price or cost is more
than the reasonable value, the difference must be paid in cash from your own resources.
- Graduated Payment Mortgage
The maximum loan amount may not be
for more than the reasonable value of the property or the purchase price, whichever is
less. Because the loan balance will be increasing during the first years of the loans a
down payment is required to keep the loan balance from going over the reasonable value or
the purchase price.
The interest rate on VA loans can
be negotiated based on prevailing rates in the mortgage market. Once a loan is made, the
interest rate set in the note will stay the same for the life of the loan.
However, if interest rates go down,
and you still own and occupy (or previously occupied) the property securing a previous VA
loan, you may apply for a new VA loan to refinance the previous loan at a lower interest
rate without using any additional entitlement.
The cost of obtaining any mortgage
can be quite a lot. VA regulates those closing costs that a veteran may be charged in
connection with closing a VA loan. No commission or brokerage fees may be charged to you
for obtaining a VA loan. However, you may pay reasonable closing costs to the lender in
connection with a VA guaranteed loan.
Although some additional costs are
unique to certain localities, the closing costs generally include VA appraisal, credit
report, survey, title evidence, recording fees, a 1 percent loan origination fee, and
discount points. The closing costs and origination charge may not be included in the loan,
except in VA refinancing loans.
In addition to negotiating the
interest rate with the lender, veterans may negotiate the payment of discount points and
other closing costs with the seller. Often, sellers will consider paying some or all of
the discount points required by the lender in order to complete the sale. This can have a
big impact on the amount of cash you must pay out of pocket in order to complete the
purchase. If the seller will not consider paving points, the veteran may be able to
negotiate an interest rate with the lender which is sufficient to avoid the need to
include any discount points in the transaction.
A VA funding fee of 2.00 percent of
the loan amount (2.75 percent for reservists) is also payable at the time of loan closing.
This fee may be included in the loan and paid from the loan proceeds. The funding fee does
not have to be paid by veterans receiving VA compensation for service-connected
disabilities, or who but for the receipt of retirement pay would be entitled to receive
compensation for service-connected disabilities, or surviving spouses of veterans who died
in service or from a service-connected disability. If the veteran makes a downpayment of
at least 5 percent, but less than 10 percent of the purchase price of the property, the
funding fee is reduced to 1.50 percent of the loan amount (2.25 percent for reservists).
If the veteran makes a downpayment of at least 10 percent, the funding fee is reduced to
1.25 percent of the loan amount (2.00 percent for reservists). If a veteran who has
previously obtained a VA home loan obtains another loan with less than a 5 percent
downpayment, the funding fee is 3.00 percent of the loan amount. With a downpayment of at
least 5 percent, the funding fee is reduced to the percentages shown above for
downpayments of at least 5 percent, but less than 10 percent, and for down payments of
more than 10 percent.
A more detailed discussion of
closing costs may be found in VA Pamphlet 26-6.
Discrimination in the sale of
housing because of race, color, religion, sex, handicap, familial status or national
origin is prohibited by Federal laws. In November 1962, Executive Order 11063 banned
discrimination in all federally assisted housing. The "Fair Housing Law," Title
VIII of the Civil Rights Act of 1968, followed by amending legislation, required positive
action be taken by Federal agencies to prevent discrimination in all housing. Further,
title VIII protects you from the following acts when they are based on discrimination on
account of race, color, religion, sex, handicap, familial status or national origin:
- Refusal to deal,
- Discrimination in terms of sale,
- Discriminatory advertising,
- False representations that a
dwelling is not available,
- Blockbusting,
- Discrimination in financing, and
- Discrimination in real estate
services.
These laws provide every person an
equal opportunity to choose suitable housing.
The Department of Veterans Affairs
affirmatively administers the VA housing program by assuring that all veterans are given
an equal opportunity to buy homes with VA assistance. All VA program
participants-builders, brokers and lenders offering housing for sale with VA
financing-must comply with Executive Order 11063 and the Civil Rights Act of 1968, as
amended.
Builders must sell newly
constructed homes with VA financing to eligible veterans without regard to the race,
color, religion, sex, handicap, familial status or national origin of the veteran.
Brokers participating in the VA
home loan program must not discriminate against a person on the basis of race, color,
religion, sex, handicap, familial status or national origin by refusing to show or sell a
property; by discriminating in the terms of the sale; or by representing that property as
not available for inspection.
Lenders participating in the VA
loan program are required by the Civil Rights Act of 1968, as amended, to act on
applications for VA home loans without regard to the race, color, religion, sex, handicap,
familial status or national origin of the veteran. In addition, the Equal Credit
Opportunity Act prohibits a lender from discriminating against an applicant on the basis
of the foregoing, or on the basis of age or marital status; because an applicant's income
derives from any public assistance program; or because the applicant has exercised any
right under the Consumer Credit Protection Act. Lenders are also prohibited from
discouraging applications on these grounds. To ensure that each applicant is fully aware
of his or her rights under the Equal Credit Opportunity Act, a lender must provide each
applicant with the Equal Credit Opportunity Act Notice and a written statement of the
reasons when credit is denied.
Therefore, if you are seeking to
use your entitlement to buy a home, you may be assured that VA will protect your civil
rights and equal housing opportunity.
The following actions, when based
on discrimination because of race, color, religion, sex, handicap, familial status, or
national origin, are recognized violations of the Federal fair housing law:
- Refusal to negotiate to sell
property.
- Discrimination in terms or
conditions of sale of real property.
- Advertising indicating any racial,
religious, ethnic or gender preference.
- False representations that real
property is not available for inspection or ale.
- Blockbusting or inducing owners to
sell real property by representations regarding entry into the neighborhood of persons of
a particular race, color, religion, sex, handicap, familial status or national origin for
profit.
- Discrimination in financing, terms
or conditions of a loan, or denying a loan.
If you experience or suspect
discrimination by a builder, broker, or lender, the local VA office will investigate. To
start a VA investigation, submit a written complaint directly to the local VA office. Your
complaint must describe the discriminatory action, including the date it occurred, names,
addresses and telephone numbers of all parties involved in the action, and the address of
the property involved. VA has a form for this purpose (VA Form 26-8827, Housing
Discrimination Complaint) which you may request from your local VA office.
You should note that in many
localities fair housing associations have been organized to assist you in locating and
purchasing a house of your choosing. There may be such an organization in your area.
When the discrimination concerns
HUD/FHA (Department of Housing and Urban Development/Federal Housing Administration) home
loans and other housing, complaint letters should be sent to the Department of Housing and Urban Development,
Assistant Secretary for Fair Housing and Equal Opportunity, Washington, D.C. 20410.
If you are unable to find new homes
available for sale with VA financing in your area or if you are unable to determine
whether particular homes being built are available for sale with VA financing, we suggest
you contact the local VA regional office. In addition, in many areas VA has repossessed
homes which it will sell to qualified buyers. Inquiry as to the availability of any VA
repossessed homes for sale in the area in which you are interested may be made by
contacting local real estate brokers.
Another area to be explored is the
existence of State benefits. Many States offer housing programs which are independent from
federal programs. The programs and benefits, as well as the qualifying criteria, may
differ from one State to the next. Information on State programs may be obtained from
State officials or from the local VA regional office. |
