Loan
Production
VA's Home Loan Program is for
veterans and active duty military personnel
(referred to as veterans throughout the rest of the
document) 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.
For those who are unfamiliar with the
program, there are several advantages to using VA's
Home Loan Program. The VA 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, which the seller generally
requires when a sales contract is signed.
Closing costs may be paid by the seller, which is an
item to consider when the sales price is being
negotiated.
Other benefits of using VA's
program (other than the 100% financing of the sales
price) include:
- Loans are assumable, provided
the person assuming the loan is qualified.
- Veterans' closing costs are
limited by VA.
- Additional assistance is
offered by VA should veterans have problems
making their home loan payments in the future.
- Prepayment of the loan
without a penalty.
Here are some quick facts you
may find useful concerning purchase transactions:
- 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.
- The veteran does have to
qualify income and credit wise.
- 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.
- 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.
- VA does not approve the
majority of loans. The majority of
transactions are handled directly by the lender
with little VA intervention.
Here are additional items you
may choose if you find them useful:
How much can the veteran afford
(and other important factors)?
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. 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. To
calculate the ratio, please go to the
Ginnie Mae site.
Important: This is
provided for informational purposes only. A VA
approved lender is the best resource to see how
large a VA loan the veteran truly qualifies for.
The lender will look at income (amount and
stability), credit and compensating factors involved
when rendering a decision. VA also allows
lenders to use certain approved automated
underwriting systems.
Other Useful Links:
-
Ginnie Mae - This site will give you
information on the process and calculators
-
HUD - Contains information on shopping for a
home, closing costs and terminology
-
MBA (Mortgage Bankers Association of
America) - Will give you information on the
purchase process, calculators and real estate
terms.
-
Freddie Mac (Federal Home Loan Mortgage
Corp.) - Site will give you information about
the purchase process and real estate terms.
-
FNMA (Fannie Mae) - Contains information on
the purchase process.
Steps in the Process of a VA
Home Loan:
There are five basic steps when
obtaining a VA backed home loan. Although
there are lots of details within each step and some
may overlap, here is a basic overview of how the
process works.
- The veteran selects a home
they are interested in. The purchase and
sales agreement should contain a VA option
clause. Sample wording for a VA option
clause:
"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."
The contract must also allow the veteran to
"escape" from the contract without penalty if
he/she is unable to obtain a VA loan. Some
veterans prefer to contact a lender to get
"pre-qualified" (see how much they can afford)
prior to searching for a home. Veterans
may also apply for a certificate of eligibility
prior to looking for a home or contacting a
lender. Please review our site for
information on certificates of eligibility and a
listing of lenders.
- Contact a lender to apply for
the loan. At this point, if the veteran
has not already obtained his/her certificate of
eligibility, they will need to. The lender
may be able to obtain it off the internet or the
veteran may have to complete a form and send it
to the appropriate eligibility center. In
either case the lender will be able to assist in
the procedures of how to obtain a certificate of
eligibility. The lender will complete a
loan application and gather supporting
documentation, i.e., paystubs and bank
statements. An important item for veterans
to know is that lenders set their own interest
rates, discount points and closing points.
- The lender will "process"
(develop) all credit and income information.
Lenders are allowed to use VA approved automated
underwriting systems. The lender will also
order a VA appraisal. VA's appraisal is
not a home inspection or a guaranty of value.
It is an estimate of the market value as of the
date the inspection is made comparing it to
similar homes that have recently sold in that
area. Although the appraiser does look for
obviously needed repairs, VA does request that
appraisers not address cosmetic items. VA
does not warrant the condition of existing
homes. The appraiser is a licensed
individual who does not work for VA but is
chosen by VA to assure his/her review is
unbiased in any way. The lender can not
request which appraiser to use, they are
assigned on a rotation basis.
- Upon receipt of the appraisal
and all supporting documentation on credit,
income and assets, the lender will "underwrite"
the loan. It is the lender who reviews all
the data collected and decides if the loan
should be granted, developed for additional data
or if the veteran does not qualify and must be
denied. Although VA does "underwrite" some
loans, it is very rare. The decision on
whether or not to approve the loan is generally
made by the lender.
- The final step for loans that
meet VA regulations and guidelines is the loan
"closing" (when the transfer actually takes
place). The lender chooses the title
company, attorney or if their representative
will conduct the closing. The title
company, attorney or lender representative who
will handle the closing will coordinate the date
and time. If there are any questions
during the process that the lender can not
assist you with, please contact a VA
representative.
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