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: www.homeloans.va.gov.