Fred's Mortgage Blog

There is quite a bit of concern regarding the elimination of the Down Payment Assistance programs and almost all other 100% purchase programs, so I want to spend a bit of time highlighting another 100% loan program. To my mind, this is the best 100% loan program, the VA loan.

VA's Home Loan Program is for veterans and active duty military personnel and certain members of the reserves and National Guard.  VA's program provides an excellent product and benefit for those individuals who have served or are serving to protect our families and our nation, as well as giving them a form of financing that will allow real estate professionals to sell more homes. To be eligible, a veteran must only have served 90 days of more of active duty.

If you are unfamiliar with the program, there are several advantages to using VA's Home Loan Program not the least is that it allows a veteran who qualifies income and credit-wise to purchase a primary residence without putting money down towards the sales price, as long as the sales price does not exceed the appraised value.  Veterans do, however, need money towards closing costs and the earnest money deposit. Closing costs may be paid by the seller however, making it possible to get into a home with no money out of pocket as the earnest money can be refunded at closing.

Here are some special items of interest about VA Loans:

• VA does not have a maximum loan amount.  However, lenders do sell loans on the secondary mortgage market, so they will generally limit loans to $417,000 ($625,500 in Hawaii, Guam, Alaska and U.S. Virgin Islands) with no down payment.  With a down payment, loans may exceed these amounts. There is also an increase in normal VA limits until Jan. 1, 2009.
• The veteran does have to qualify income and credit wise. (* see note below)
• The veteran does have to occupy the home as their primary residence.
• The veteran does not have to be a first time home buyer and may reuse his/her benefit. (subsequent usage could mean higher funding fee)
• The lender, not VA, sets the interest rate and discount points, so they may vary from lender to lender.
• There is no private mortgage insurance, but VA does charge an up front VA funding fee, which may be financed.  The exception to this is that if a veteran is in receipt of VA service connect disability payments each month, he or she does not have to pay a VA funding fee.
• The seller can pay for closing costs.  There is a requirement that seller concessions do not exceed 4%, but only certain items are considered as part of the concession; i.e., payment of pre-paids, VA funding fee, payoff of credit balances or judgments on behalf of the veteran, funds for temporary buydowns (not discount points).
• The veteran is not allowed to pay for the wood destroying insect (termite) report; it is generally paid by the seller. The veteran is also not allowed to pay the processing, underwriting or tax service fees, nor are they allowed to pay part of the escrow closing fee. These are normally paid for by the seller.
• VA does not approve the majority of loans.  The majority of transactions are handled directly by the lender with little VA intervention.

Please note: the above seal does not mean My company is endorsed by the Department of Veterans Affairs, it just provides a link to their website. We are, however, VA approved to originate VA loans.

VA also required the following on any purchase agreement: "It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise of be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs.  The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs."

I am a veteran myself and am available to help my comrades-in-arms. I will always strive to make the closing as easy and as painless as possible. I also will work with each client to make sure the amount you are planning to pay at closing is the amount you pay. I have a VA loan myself and cannot say how much I believe in the program. I highly recommend that anyone contemplating purchasing a home (VA, FHA or conventional) be pre-approved for that loan. This is easy enough to get done, give me a call to schedule an appointment. Normally, we can also take care of getting your VA eligibility certificate for you.

* Please note that VA uses two methods for qualification purposes.  The primary method of evaluating a veteran's income is the residual income method.  Under this method, the underwriter determines that a veteran has sufficient income to cover day-to-day living expenses after paying housing expenses, taxes, and other debts such as car payments and credit card payments. This is very important, a loan can be approved by the automated underwriting system but if the residual income is insufficient, it could later be denied.  VA also uses a debt-to-income ratio method like many programs.  However, VA uses only one ratio which is the ratio of total debt (both housing and other debt) to income.