VA Home Loans
VA Home Loans: Facts and History
Buying a new home is a huge investment – not only financially, but emotionally as well. It can be a thrilling experience, but also a trying process that does not always work out as planned. The US Department of Veterans Affairs is well aware of this and has made the loan process simpler and more affordable for veterans, active duty military personnel, and their families.
VA Loan History
The very first VA loans were part of the comprehensive GI Bill that was signed into action in 1944. Under the law, the VA was given the authority to guarantee the loan for a home, farm, or business to veterans or their surviving spouses with no down payment. The zero-down feature of the law was designed to provide assistance to millions of veterans who might not have otherwise been able to become homeowners.
The law also made it possible for veterans to buy homes in small, rural towns where private funding was not available. Of the many benefits extended in 1944, VA loans have been one of the most beneficial to the welfare of veterans and their families. Since 1944 over 18 million veterans have taken advantage of this bill and made home ownership a reality.
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VA Mortgages Today
Today, qualifying veterans can get a get a loan issued by a private lender such as a bank, savings & loans, or mortgage companies, and have them guaranteed by the VA. This means no down payment is necessary, and monthly payments are lowered because there is no need for Premium Mortgage Insurance.
The repayment terms are also favorable to the borrower, whether they choose a traditional fixed, growing equity mortgage, graduated payment mortgage or an adjustable rate mortgage. Each plan has low interest rates, and with the adjustable mortgages, the change is limited to 1% annually and does not exceed 5% over the lifetime of the mortgage.
The VA has also made it incredibly easy to refinance with an IRRRL, which is also known as VA Streamline refinancing because of the quick, paperless process involved with obtaining a new mortgage.
Having a VA loan is incredibly beneficial for many reasons. If you are a qualified veteran looking to be a first time homeowner, this is a great way to go. Make sure you contact the VA to make sure you have all the necessary paperwork for obtaining a VA guaranteed loan. You will also want to sit down with your loan officer to go over any questions or concerns you have to make sure you have the most enjoyable, stress-free experience.
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VA Jumbo Loans
If you are a qualified veteran interested in obtaining a mortgage for a new home, you have access to a basic entitlement of $36,000 on loans up to $144,000. Bonus entitlement is $70,025 x 4 = 280,100. $144,000 + $280,100 = $424,100 (the maximum loan value for which the VA will guarantee) However, the VA has made changes in recent years that allow veterans to purchase single-family homes higher than this amount.
Entitlements For Veterans
The VA now offers an entitlement up to 25% of the loan amount if it is higher than $144,000 (as long as it is below your county’s loan limit). This means you can buy a more expensive house and still not have to make a down payment.
A jumbo loan is an industry term used for any amount higher than $424,000. In 2019, the VA loan limits for most counties will be higher than this amount, which means you can get up to a 25% guaranty for a jumbo loan with no money down.
VA Loan Limit
In some counties the loan limit is as high as $1,000,000 (which is considered a super-jumbo loan). So if you lived in a country where the loan limit was set at $1,000,000 and you purchased a house at that price, the VA would guarantee up to $250,000 with no down payment.
However, if you find a house with a price that exceeds the county loan limit, the VA will only issue a guaranty up to the limit. This means you will have no down payment for the loan up to the limit, but you will have to pay 25% of the down payment on the rest of the loan.
For example, if you want to purchase a house for $600,000 but your county limit is $400,000, you will have to pay 25% of the remaining $200,000 that is not guaranteed by the VA.
If you’re thinking about getting a jumbo loan from the VA, there are some precautions you need to take. The first thing to keep in mind is that even though it is guaranteed, jumbo loans and super-jumbo loans are considered riskier to the lender and tend to have much higher interest rates. Also, lenders are not as happy lending money on a jumbo loan when there is no down payment. With all this in mind, it is still very possible to obtain a VA guaranteed jumbo loan with no money down.
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VA Streamline Refinancing and Marital Status
If you already have an existing VA loan and are interested in refinancing, there is no better time than now. Interest rates are low, and since you already have a VA loan you can apply for a VA Interest Rate Reduction Refinancing Loan (IRRRL) also known as VA Streamline refinancing because of simple process involved. However, if there is a change in your marital status (whether you are getting married or divorced) there are some things you need to be aware of.
When you apply for a VA IRRRL, one of the benefits is the relative ease it is approved compared to the refinancing of other loans. There is no additional paperwork, out-of-pocket fees, background checks, etc. This is because everyone on the loan has already been approved by the VA, so there is no need for further checks.
Removing A Borrower From A VA Loan
If you need to remove a borrower from the loan, you will have to reapply for a brand new VA loan. This is because the entire status of the loan changes, so you will be required to provide full documentation for the loan with a credit check, debt ratio, income verification, etc. You will still be qualified for a VA IRRRL but it will require a little more paperwork than if you kept the original borrowers on the loan.
What To Do After A Divorce?
If you have recently divorced and want to refinance the loan, you will need to make proper arrangements with your spouse as to the status of the loan.
If you are letting your spouse keep the house, it might be a good idea to let them refinance with a traditional loan in their own name. Otherwise, you will not be eligible for another VA loan, even if they are paying the entire mortgage. In this case, you will have to wait until your non-military ex-spouse has refinanced the house with a traditional loan in their name until you are eligible for a new VA loan.
What About A New Spouse or Co-borrower?
When refinancing with a new spouse or co-borrower, you will need to go through all the necessary steps with your loan officer first. Your new spouse will likely need to provide income statements, credit check, debt ratio, etc. before being approved on the VA IRRRL. Remember, regardless of the status on your refinanced loan, you cannot use it to take out cash. If you’re interested in refinancing in order to take out equity, you will need to get a Cash-Out Refinance.
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Joint VA Loan
Having a co-signer on a loan can be incredibly handy and useful for getting a bigger loan and lower interest rates. This is true not only for traditional loans, but for VA loans as well. If you are considering getting a joint loan, you can use your spouse, another veteran, or a non-veteran to co-sign. Of course there are some rules and stipulations that come with each type of co-signer.
Spouse
If you are planning on a joint loan with your spouse, they will be covered under the entire VA loan. The VA guidelines recognize legally married spouses of veterans as co-signors on VA loans and can include their income and credit to qualify for the loan. This type of joint loan can be fully guaranteed by the VA.
Veteran
For a co-signer who is another eligible veteran, the VA will issue a joint loan that covers both borrowers. In this case, the VA will divide the entitlement charge equally between the veterans.
Non-veteran
If your co-signer is non-military and not your spouse, they are still allowed to be a on the joint loan, but they won’t be covered under the VA guaranty. If you default or go into foreclosure, the non-military co-signer won’t be protected for their half of the loan.
This can cause problems with some banks that may be unwilling to lend to a co-borrower who is not insured. The best thing to do is talk with your loan officer to see what type of arrangement can be made.
For example, a bank may be willing to issue the joint loan as long as you both put an initial down payment on the part that is not covered under the VA. You will also need to file a joint loan with the VA before you can obtain the loan for your house.
Remember that buying a house with someone is a huge commitment, so take the time beforehand to make sure your co-signer has good credit, solid income, and will be able to pay their portion in the future. It’s a good idea to verify these issues months in advance, that way you can make sure all credit problems are dealt with before you start the loan process.
Once you have decided to go ahead and apply for a joint loan, sit down with your loan officer to ask questions, discuss the details about applying, and find out what paperwork needs to be completed by your co-borrower.
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Types of VA Loan Repayments
Once you’ve decided to go ahead and apply for a VA loan, the next step is choosing what kind of repayment plan you want to be on. There are five options you can choose from, and it really comes down to how much you are willing to pay up front and in the future. This article will take a closer look at these five options which include a traditional fixed payment, growing equity mortgage (GEM), graduated payments mortgage (GPM), traditional ARM, and Hybrid ARM.
Traditional Fixed
The traditional fixed loan is a common type of loan not only for VA loans, but other types of loans as well. As the name indicates, it is a fixed interest rate that does not change over the years. This repayment option is good for people who want stable payments month after month.
Graduated Payment Mortgage
GPMs start out with a very low month-to-month interest rate that increases gradually over time, but levels off in the sixth year. This is a great option for first-time homebuyers who might not be able to afford high mortgage payments right off the bat (especially if you have to factor in furniture, remodeling, etc.). It is also good for people who are up for promotions and pay increases in the near future.
Growing Equity Mortgage
GEMs also increase over time. However, with this payment option, the price increase is only applied to the principal of the loan. In this way you are able to pay off your loan more over time, saving you on interest rates as you go.
Traditional ARM
Adjustable rate mortgages are a great idea for people who want to plan ahead. If you think you might want to get a VA Streamline refinanced loan, than this is a good option. The VA ARM is different than traditional ARMs in that the loans are adjusted annually and are limited to a one percent increase. The total change over the life of the loan is limited to 5 percent.
Hybrid ARM
A Hybrid ARM is locked in for at least three years before the rate is adjusted. However, if the loan is fixed for five years, the adjustment can be as high as 2 percentage points. Just as with the traditional ARM, there is a cap on the change in interest at 5 percent over the lifetime of the loan.
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Refinancing Your VA Loan
Refinancing a mortgage loan is easier and more common today than ever, and this is true for both traditional loans and VA loans. There are many reasons why you might want to refinance, whether you need cash to pay off other debts, or just want to get a lower interest rate on your current loan.
The VA accommodates all of these needs by providing two different refinance plans: VA Cash-out Refinance Loan and Interest Rate Reduction Refinance Loan (IRRRL).
Cash-out
A cash-out loan is great if you need money now. Whether you want to buy a new home, pay tuition, or consolidate your debts, the money is yours to do with as you like.
If your house is your primary residence and you already have a VA loan, you can qualify to refinance up to 90% of the appraised value. Just as with a traditional loan refinance, your new mortgage pays off the old debt on your house and the cash you receive is borrowed from the equity on your home.
IRRRL
IRRRLs were created for veterans who want to refinance their loan to obtain a lower interest rate but not take out any cash. This refinance plan is also called the VA Streamline loan because of the speed and simplicity with which the loan is issued.
A streamline refinance requires no “out-of-pocket” expenses and very little documentation. The no cost feature allows you to either roll the fees into the new loan, or have the lender pay them and give you a higher interest rate. However, unless you are going from a VA ARM to a fixed rate, the interest rate must be lower that what you are currently paying.
In terms of documentation, as long as the borrowers are still the same, there is no need for another appraisal, credit check, or other type of paperwork.
If you’re interested in refinancing your home, whether to receive cash or lower your monthly payments, now is a good time to do so while interest rates are still low. With your VA loan, no matter what type of repayment plan you’re on, you will be able to obtain a new mortgage with relative ease and no closing costs.
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VA Guaranty vs. VA Loan
Becoming a first-time homeowner is an exciting time and a big milestone in everyone’s life. However, it can be also be stressful and confusing, especially with all the options, small details, and paperwork that is required.
If you are military personnel, the VA has made this a much easier process by offering a VA guaranty. While this lowers much of the risk, still, it is important to understand the ins and outs of a VA loan before you sign on the dotted line.
The first thing you need to understand as a borrower is where the money comes from. A lot of people believe the VA itself provides the money, which is incorrect. The money is actually provided by private lenders such as banks, savings & loans, and mortgage companies just like any other loan.
What the Department of Veterans Affairs does is step in with a loan guaranty that makes it more secure for the lender. The VA will pay a certain amount of the mortgage to the lender in the event that you default on your loan.
It is important to note that the VA does not guarantee the entire loan amount. In fact, it is only covers up to half of the loan, and sometimes less. Even so, it is still substantially higher than you would get with traditional mortgage insurance. Basically, you need to think of it less as a loan, and more of a “VA Insured Loan.”
There is no limit on how big of a loan you can get – it really depends on the lender and all the factors involved (house appraisal, income, etc). The VA does not limit how much you can borrow, but they put a cap on their guaranties, which vary from county to county.
Now that you know the difference between the loan and the VA guaranty, you might be wondering what the benefits are.
For starters, you don’t have to make a down payment. Not only do you not have to ante up the initial cost, but the lender is also willing to give you a bigger loan with lower interest rates with the VA guaranty.
You also have more money left over each month because you don’t have to pay private mortgage insurance.
If you are in the military or are a veteran looking to become a first-time homeowner, you should definitely look into VA loans as one of your options. With VA loans you get really great rates, reduced initial costs, and higher loans amounts than you might otherwise obtain. You also will qualify for a VA IRRRL in the future, which makes refinancing a cinch.
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VA Loan Requirements
Unlike some misconception, getting approval for a VA loan is not as complicated as it was several years ago. Today, in order to get a VA loan you only need to satisfy a number of requirements and conditions. Here are the things a veteran must have/be in order to get a VA loan approval:
- The applicant should be an eligible veteran with an available entitlement.
- The loan should be used for an eligible purpose.
- The applicant should occupy or have the intention of occupying the residential property as his home within a rational duration of time after the loan has been closed.
- The applicant should have an acceptable credit risk.
- The income of the applicant and spouse, if applicable, should be proven to be stable and adequate to shoulder mortgage payments, meet the expenses of owning a house, cover other costs, and still have a suitable amount left to support the family.
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VA Loan Funding Fee
Just for the record, the VA Loan is also referred to as the GI Bill of Rights through the Servicemen’s Readjustment Act. The said bill, which provides veterans with a federally guaranteed home without the need for them to shoulder the down payment, was signed into law by the then President Franklin D. Roosevelt.
The main purpose of the VA Loan, of course, is to offer housing assistance to the veterans and their families. This helped pave the way for millions of veterans to make their dreams of owning a house a resounding reality.
Aside from being arguably the most helpful program in history to improve the welfare of its recipients, the GI Bill is also notable for helping in the economic development of the country.
How Much Is The VA Funding Fee?
Now, side by side with the VA Loan is the VA funding fee, which is required by law. This fee, which at present is slated at 2.15 percent on no down payment loans for a person who is using it for the first time, is charged to let the veterans who make use of the VA home loan to actually contribute in the cost of the said benefit.
This would spell out fairness to everyone because it means that the cost other taxpayers have to pay for it is actually reduced. Meanwhile, the VA funding fee for second time users is 3.3 percent if they do not make a down payment prior to that.
The reason for a higher percentage of fee for second timer users is that these veterans already had the chance to avail of the VA loan before, and they also had enough time to already save up for a down payment.
The VA fee and the down payment required are determined by quite a number of factors. For instance, there are a few options for members of the regular military who want to take advantage of purchase and construction loans. It’s no down payment and a 2.15 percent fee; or up to 10 percent down payment with a 1.5 fee; or 10 percent and above down payment with a 1.25 percent fee.
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VA Loan Checklist
The VA loan is a financial assistance available to more than 25.5 million eligible veterans as well as service personnel. This benefit, which is designed to offer housing assistance to veterans and their families, is undeniably attractive and provides several advantages to boot. A veteran is eligible to avail of the VA loan if he served on active duty and was honorably discharged after not less than 90 days of service during the war, or not less than 181 consecutive days during peacetime.
If a veteran began his service after September 7, 1980, or if he was an officer and started his service after October 16, 1981, then there is a two-year requirement for that to able to make use of the loan. On the other hand, there is a six-year requirement for national guards and reservists, with specific rules and criteria to follow before surviving spouses can also avail of the VA loan.
Together with the VA loan is the VA funding fee, which is required by law for veterans. This fee, which at present time is 2.15 percent with no down payment loans for a first-time user, is designed to allow a veteran who avails of the VA home loan to actually contribute to ease the cost of the said benefit for other taxpayers.
Before starting the application for the VA loan, you need to prepare some information. Here are a number of the things you have to have in hand:
- Social Security numbers
- Residence addresses for the past two years
- Names and addresses of your employers over past two years
- Your current gross monthly salary
- Names, addresses, account numbers and balances on all checking and savings accounts
- Names, addresses, account numbers, balances and monthly payments on all open loans
- Addresses and loan information of other real estate owned
- Estimated value of furniture and personal property
- Certificate of Eligibility and DD214, (for veterans only)
- W2’s for the past two years and current check stubs
- For self-employed individuals, you need to have your personal tax returns for the past two years, current income statement and balance sheet for the business
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