Friday, November 21, 2008

Anatomy of a V.A. Loan

I don’t know if it’s in response to the recent celebration of Veteran’s Day or what, but I’ve been working more V.A. loans than usual. I actually like providing these safe, secure, and easy to qualify for loans to Veterans. If you know a Veteran the information in this article could prove helpful to them.

Just what is a V.A. loan? It is a guaranteed loan made by private lenders to eligible veterans for the purchase or refinance of a home. If the loan is approved (and most of them are), the V.A. will guarantee a portion of it to the lender. If the Veteran has never used his/her entitlement before, or, has previously used it for a home which has been sold and the loan paid in full, then he/she has full entitlement available and can apply for maximum V.A. funding.

Currently the V.A. maximum purchase loan amount is $417,000 which equals current conventional conforming loan limits. In December 2004, V.A. guidelines were modified so the maximum entitlement will index and increase accordingly with conforming loan limits, therefore always equaling 25% of the current conforming limit.

Requirements for V.A. home loan approval are simple. 1) Applicant must be an eligible Veteran who has available entitlement; 2) The Veteran must occupy the property as their primary residence. That’s it.

V.A. loans can be used to purchase a home and even multi-family homes up to 4 family units for one Veteran, including townhouses or condos in a V.A. approved project. The loan can also be used to build a home or refinance an existing home to take cash-out, reduce the interest rate (“IRRRL”) or convert and adjustable rate mortgage to a fixed rate mortgage.

Some of the advantages the V.A. loan provides the Veteran are: 1) 100% financing – no down payment; 2) No cash reserves required; 3) More leniency on derogatory credit; 4) Sellers can contribute up to 4% of the purchase price toward Veteran’s closing costs; 5) No monthly mortgage insurance; 6) Low interest rates – in most cases near conforming levels.

One thing many Veterans are surprised to learn about is the up-front funding fee associated with every V.A. loan. The funding fee is a one-time, up-front charge applied as a percentage to the “base loan amount”. The funding fee may be financed into the loan provided the entire loan amount does not exceed current limits of $417,000.

A Veteran purchasing a home who has never used their eligibility is charged a 2.15% funding fee. The percentage of subsequent entitlement usage is 3.35%. The percentages are slightly higher for Reservists and National Guard Veterans. The same percentages apply to first time and subsequent cash-out refinance loans. But if the Veteran is simply reducing the interest rate on their home loan the up-front funding fee is only .50% and if the Veteran receives V.A. disability benefits, then the funding-fee is waived for all home loan transactions.

If you need a copy of your certificate of eligibility there are two ways to get it. The quickest and easiest way is to meet with your mortgage lender. In most cases when Veterans come to my office, I am able to access their certificate on-line in a matter of minutes and there is no charge for this service. On the rare occasion when the certificate is not available on-line I can provide the form the Veteran must complete and mail to the Department of Veteran Affairs Eligibility Center P.O. Box 20729 Winston-Salem, NC 27120.

For a comprehensive government website please go to:

Which is Better? A Will or a Trust?

His cell phone rang and he pulled it out of his pocket. Before pressing the green button he checked the display to see who was calling. “MOM.” He pressed the send/end button, “Hey You!” he said, giving her the greeting she had grown accustomed to. “What are you doing?” Her usual response was “Oh, nothing. Just coming home from…” She was always coming or going somewhere. But this call was different. She sniffled and called him by the name every mother calls her son when the purpose of the call was serious, “Son.” He braced himself. “Your Uncle Joe is gone.”

Uncle Joe had been in the hospital for several weeks and his condition had steadily declined. Uncle Joe’s wife had died several years earlier and Joe had lived alone supported by the daily phone calls and irregular visits from the three children. The next visit the kids made would be to a house filled with stuff but missing its most important asset, the occupants who had made the house a home.

The children got along well enough, but then each one had their own idea of how best the “stuff” could and should be distributed. To further complicate matters, no one was quite sure whether their dad had drawn up a will or if he had used a trust. They knew their father had drawn up some papers shortly after their mother’s death, but they didn’t know what type of documents to expect. He had put the papers in the safe deposit box at the bank but it was Saturday evening and they wouldn’t have access to the papers until Monday morning.

This kind of suspense does no one any good. So to help my readers avoid undue stress and to answer some of the questions that surround the differences between these two legal instruments, I spoke with Richard Harris of the Oklahoma City firm Walls, Walker, Harris, & Wolfe ( “Regardless of the instrument chosen, the most important thing is to communicate with your loved ones where these documents are stored and the name, if any, of the attorney who will be overseeing the distribution process” says Harris. “It can be very disturbing to the heirs when they walk into a meeting expecting a will but being told that a trust was prepared.”

A will is the most common document used to convey ownership of property or assets to the heirs. Wills can be prepared by an attorney for around $500.00. Self-help will packets can be purchased on-line for even less. “Extreme care should be exercised” Harris says, “before this type of document is chosen. Although many of these sites say they are legal in your state, the requirements for a valid will vary from state to state, and it’s always a good idea to have an attorney review the will to make sure everything is in order and that your last wishes are fully and properly stated.”

Using a will can cost less up front than a trust, but almost always costs significantly more in attorney fees down the road. In most situations a will must be probated. This requires hearings in front of a judge, newspaper notices and a public inventory of your assets at the time of death. A trust bypasses probate altogether.

Preparing a trust may seem more costly up front ($2,000 plus) when compared with a will, but administering the trust typically incurs fewer attorney fees than does the execution of a will. Choosing which instrument is better for your circumstances will require you to do some research or perhaps seek the counsel of an estate planning attorney.

Talk with a trusted friend or co-worker who has already prepared their will or trust. Ask them how they made their decision. Then contact an estate planning attorney and take an hour to discuss your specific situation. Most attorneys, including Richard Harris, provide these consultations at no charge. Once you make up your mind which instrument is in your best interest, communicate your choice with your loved ones. You and your family will be glad you did.

(Trey Bowden is a licensed Mortgage Professional in Edmond)