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Todd Abelson: (520) 991-VA VA Sunny Tucson, AZ |
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Everything You Wanted To Know About VA LOANS
WHAT IS A VA LOAN?The VA loan began in 1944 through the original Servicemen's Readjustment Act, also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans. VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.
VA LOAN LENDING LIMITSMAXIMUM GUARANTY AMOUNT The Veterans Benefits Act of 2004 was signed by the President on December 10, 2004. The law changes the maximum guaranty amount of $60,000, for certain loans in excess of $144,000, to an amount equal to 25 percent of t he Freddie Mac conforming loan limit determined under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act for a single family residence, as adjusted for the year involved. To illustrate, the maximum guaranty for 2006 would be $104,250. This is for 25 percent of the 2006 Freddie Mac conforming loan limit for a single family residence of $417,000. The maximum eligibility for each veteran is $104,250 and the maximum loan amount with no down payment is $417,000.
VA LOAN CLOSING COSTSThe veteran can pay a maximum of all reasonable and customary amounts for any and all of the "Itemized Fees and Charges" designated by VA as defined below plus a 1% flat charge by the lender plus reasonable discount points. Some special provisions apply to construction, alteration, improvement and repair loans.
ITEMIZED FEES AND CHARGESThe VA defines allowable fees and charges that the veteran borrower can pay or closing costs that may be charged to the borrower. These costs are determined as reasonable and customary by each local VA office. All other costs in the transaction are considered non-allowable and generally paid by the seller when purchasing a new home or by the lender when refinancing your current VA mortgage. Itemized fees and charges are as follows:
APPRAISAL AND COMPLIANCE INSPECTIONSThe veteran can pay the fee of a VA Appraiser and VA compliance inspectors. The veteran can also pay for a second appraisal if they are requesting a reconsideration of value. The veteran cannot pay for a second appraisal if the lender or seller is requesting a reconsideration of value or if parties other than the veteran or lender request the appraisal. RECORDING FEES CREDIT REPORT PREPAID ITEMS HAZARD INSURANCE FLOOD ZONE DETERMINATION SURVEY TITLE EXAMINATION AND TITLE INSURANCE SPECIAL MAILING FEES FOR REFINANCING LOANS VA FUNDING FEE OTHER FEES AUTHORIZED BY THE VA The following list provides examples of items that CANNOT be charged to the veteran as "itemized fees and charges." Instead, the lender must cover any cost of these items out of its flat 1% fee. Loan closing or settlement fees, document preparation fees, preparing loan papers or conveyance fees, attorneys services other than for title work, photographs, interest rate lock - in fees, postage and other mailing charges, stationery, telephone calls and other overhead, amortization schedules, pass books, and membership or entrance fees, escrow fees or charges, notary fees, preparation and assignment of mortgage to other secondary market purchasers, trustee's fees or charges, loan application or processing fees, fees for preparation of truth-in-lending disclosure statement, fees charges by loan brokers, finders or other third parties, and tax service fees. When reviewing allowable borrower fees and charges, many of the items can be paid for by the seller of the home and can be negotiable when presenting an offer on a home to the seller. Please consult with your Real Estate Professional handling the transaction.
VA MORTGAGE DEBT-TO-INCOME RATIOAccording to VA guidelines, borrowers and / or their spouse must qualify according to set debt ratios which are used to determine whether the borrower can reasonable be expected to meet the expenses involved with home ownership.
TOTAL FIXED PAYMENT TO EFFECTIVE INCOMEAdd up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 41%. In the event the number exceeds the 41%, the VA has a residual income guideline which can allow approval, yet are not considered a compensating factor. EXAMPLE:
Please note that the above indicators do not exclusively determine whether or not a veteran will qualify for a VA loan. Compensating factors may affect the loan decision. These factors are especially important when reviewing loans which are marginal with respect to residual income or debt-to-income ratio. They cannot be used to compensate for unsatisfactory credit. Some compensating factors include, but are not limited to the following:
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VA LOAN FUNDING FEEThe VA funding fee is required by law. The fee, currently 2.15% on no down payment loans for a first-time use, is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers. The funding fee for second time users who do not make a down payment is 3.3%. The idea of a higher fee for second time use is based on the fact that these veterans have already had a chance to use the benefit once, and also that prior users have had time to accumulate equity or save money towards a down payment. For purchase and construction loans, members of the regular military fall into the category of first time user or subsequent user. For first time users, no down payment requires a 2.15% fee, up to 10% down payment requires a 1.5% fee, and 10% or more requires a 1.25% fee. For subsequent users, no down payment requires a 3.3% fee, up to 10% down payment requires a 1.50% fee, and 10% or more requires a 1.25% fee. For the category of Reserves / National Guard, first time users with no down payment requires a 2.4% fee, up to 10% down payment requires a 1.75% fee, and 10% or more requires a 1.5% fee. For subsequent users, no down payment requires a 3.3% fee, up to 10% down payment requires a 1.75% fee, and 10% or more requires a 1.5% fee. Cash-out refinancing loans for regular military requires a 2.15% fee for first time users and a 3.3% fee for subsequent users. For Reserves / National Guard, the requirement is a 2.4% fee for first time users and a 3.3% fee for subsequent users. On interest rate reduction loans, the VA funding fee is .50% and it is 1.0% on Manufactured Home Loans. The following persons are exempt from paying the funding fee:
Please note that the VA has the final say on who is exempt.
VA LOAN CREDIT ISSUESVA will analyze a borrower's past credit performance in determining the loan for approval. A borrower who has made timely payments for the last 12 months serves as a guide and demonstrates their willingness to repay future credit obligations. On the opposite side, a borrower who reflects continuous slow payments, judgments and delinquent accounts is not a good candidate for loan approval. Below is a list of items concerning the borrower's credit.
LATE MORTGAGE PAYMENTSIn circumstances not involving bankruptcy, satisfactory credit is generally considered to be reestablished after the veteran, or veteran and spouse, have made satisfactory payments for 12 months after the date of the last derogatory credit item(s). When the underwriter analyzes the borrowers’ credit; it is the overall pattern of credit behavior that must be reviewed, rather than isolated cases of slow payments. A period of financial difficulty does not disqualify the borrower if a good payment pattern has been maintained since then. Account balances reduced to judgment by a court must either be paid in full or subject to a repayment plan with a history of timely payments.
NO CREDIT HISTORYIn the area of credit, the lack of an established credit history should not be a deterrent to loan approval. As provided in the credit standards, a satisfactory payment history on items such as rent, utilities, phone bills, etc., may be used to establish a satisfactory credit history.
CHAPTER 7 BANKRUPTCYThe VA guidelines state that a minimum of two years must elapse since the discharge date of the borrower and / or spouse's Chapter 7 bankruptcy, not the filing date. A full explanation of the bankruptcy will be required. The borrower must also have re-established good credit, qualify financially and have good job stability.
CHAPTER 13 BANKRUPTCYThe VA guidelines state that they will consider a borrower still paying on a Chapter 13 Bankruptcy if the payments to the court have been satisfactorily made and verified for a period of one year. In addition, the court trustee will need to give written approval to proceed. A full explanation of the bankruptcy will be required. The borrower must also have re-established good credit, qualify financially and have good job stability.
COLLECTIONS, JUDGEMENTS AND FEDERAL DEBTSThe VA guidelines state that if a collection is minor in nature, it usually does not need to be paid off as a condition for loan approval. Judgments must be paid in full prior to closing. A borrower is not eligible for the loan if they are delinquent on any federal debt. This can include tax liens, student loans, etc. Payment arrangements that would bring the borrower up to date may be considered for loan approval.
FORECLOSUREA borrower whose previous residence or other real property was foreclosed on or given a deed-in-lieu of foreclosure within the previous two years since the disposition date is generally not eligible for a VA insured mortgage. If the foreclosure was on a VA loan, the applicant may not have full entitlement available for the new loan.
CONSUMER CREDIT COUNSELING PLANIf a veteran, or veteran and spouse, have prior adverse credit and are participating in a Consumer Credit Counseling Plan, they may be determined to be a satisfactory credit risk if they demonstrate 12 months' satisfactory payments and the counseling agency approves the new credit.
THE LAW ON OCCUPANCYThe law requires a veteran obtaining a VA guaranteed loan to certify that he or she intends to personally occupy the property as his or her home. As of the date of certification, the veteran must either (1) personally live in the property as his or her home, or (2) intend, upon completion of the loan and acquisition of the dwelling, to personally move into the property and use it as his or her home within 60 days after the loan closing (reasonable). The above requirement applies to all types of VA guaranteed loans except Interest Rate Reduction Refinancing Loans (IRRRLs). For IRRRLs, the veteran need only certify that he or she previously occupied the property as his or her home.
CO-SIGNORS OR JOINT VA LOANSThe VA guidelines recognize legally married spouses of qualified veterans as co-signors on VA loans and can include their income. These loans can be fully guaranteed by the VA. The VA guidelines will allow for more than one eligible veteran(s) to purchase a home. If more than one eligible veteran is involved, VA divides the entitlement charge equally between them, if possible. These loans can be fully guaranteed by the VA. While the VA guidelines may allow for a non-veteran to co-sign for a mortgage loan, they will not fully guarantee the loan. The VA Guarantee is limited to that portion of the loan allocated to the veteran's interest in the property. That means the VA will not fully guarantee this type of loan and our company cannot originate loans that are not fully guaranteed by the VA. | ||||||||||||||||||
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