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VA Home Loans

Advantages of VA The Loan

Department of Veterans Affairs seal

The VA loan program is a home loan program for American Service Veterans.

The VA Loan is a true no money down home loan. It requires no reserve, and no money out of pocket. They have the same interest rate as FHA loans but have no down payment, no mortgage insurance and a higher dollar limit.

Eligibility for VA Loans

VA loans require prior service with a discharge other than dishonorable. Veterans are required to submit a copy of their DD214 with their loan application. Active duty military are eligible for VA loans after serving 24 months active duty. Reserve and National Guard personnel are eligible for VA loans after Six years of service.

These are the basic criteria for eligibility for this loan program but there are exceptions. Time in service requirements are shorter in some circumstances, such as war time veterans and disabled veterans. There are also provisions for surviving spouses.

Maximum Loan Limit

Maximum VA loan amounts vary from county to county and change over time. At this time, the maximum amount that can be borrowed to purchase a home in Spokane County is $417,000.

Credit score requirements

The VA does not have a minimum FICO credit score requirement for VA barrowers. The VA requires that the lender review the entire loan profile to make a discussion. Individual lenders are allowed to put credit requirement overlays that have tighter restrictions than the minimum program requirements. Most VA lenders are going to require a 620 minimum credit score.

If your score is below 620 but the rest of your borrower profile looks real good, you may want to shop around with different lenders. You may want to avoid allowing a bunch of lenders different lenders to run your credit though.

Debt to Income Ratio

ballance scales with words; debt and income

The VA loan has no debt to income ratio. If your total debt to income ratio exceeds 41%, the lender needs to provide compensating factors.

To figure out what your total debt to income ratio is, total all your monthly recurring revolving and installment debt, car loans, credit cards, student loans etc. Then you add your new home expenses to include payment, taxes, insurance and any homeowners' association dues. This total should not exceed 41% of your combined gross monthly income. If it does, loan underwriting may be a challenge.

Out of Pocket Expense

VA loans often cost the borrower nothing out of pocket. They can be for 100% of the appraised value of the home. These loans also allow for the seller to contribute up to 4% additional for the buyer's closing costs. This additional contribution from the seller can even be used to pay points for a lower interest rate. The buyer is not required to have a cash reserve with a VA loan.

Closing Costs

change on top of dollar bill

There are closing costs associated with a VA loan, but they can be paid for by the seller. The amount of the closing costs varies from loan to loan. Some of the costs are fixed, and some depend on the amount of the loan. Some closing costs even depend on when you close. You can approximate an additional 3% to 4% on top of the borrowed amount for closing costs on a VA loan. Closing costs are discussed in greater detail in another article. After reading the article on closing costs, you will better understand them and come up with a more accurate approximation.

In addition to the normal closing costs, the VA loan also has a funding fee.

Funding Fee

A funding fee is similar to private mortgage insurance. It is a fee paid by the borrower that guarantees the loan. It is paid up front rather than monthly. Normally the funding fee is added to the loan and financed over the life of the loan. For VA loans with less than 5% down payment (less than 95% equity), the funding fee is 2.15% of the loan amount for veterans of active duty service. The funding fee is 2.4% of the loan amount for reserve or guard veterans. The funding fees are lower with more equity. These numbers may change.

Types of Property

The VA loans are designed to be used for an owner occupied home. They are intended for primary residence, not secondary residence or vacation homes. They can be used for condominiums, houses, or manufactured homes on land.

VA loans may be used for raw land to build a home on or put a manufactured home on. They may not be used to buy raw land without the intent of putting a home on it and living in it.

They may be used to purchase multi-unit residential homes; duplexes and apartments. When multi-unit homes are bought with VA loans, they may not exceed four units, and the owner must occupy one of the units. VA loans may also be used to buy homes with business space, though the business space may not exceed 25% of the total space.

Multiple Use of VA Loans

You may use your VA loan as many times as you like as long as it is in good standing. If you sell your home or pay your VA loan off, you can use your VA loan again. There is also no prepayment penalty associated with a VA loan.

VA loans are assumable, but if someone assumes your VA loan, you are not eligible for another VA loan, until that loan gets cleared up.

After a short sale is resolved, it will be two years before your VA loan is cleared. This may vary with lenders.

VA Inspection

There is not a special VA inspection. VA loans do however require that homes meet certain minimum standards. The appraiser who does the appraisal for a VA loan needs to be certified as a VA appraiser, as well as being a certified appraiser in that state. Though they are looking for the home to meet these standards, this is not a home inspection. It is still advisable to get a home inspected by a certified home inspector before you buy it.

VA Refinance

The VA Loan may be used for refinancing home loans for qualified buyers. If the current loan is a VA loan, the refinance can be for the full value of the house. If the current loan is something other than a VA Loan, it may be used to refinance up to 90% of the value of the home.

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