Foreword
The main purpose of the VA home
loan program is to help veterans finance the purchase of homes
with favorable loan terms and at a rate of interest which is
competitive with the rate charged on other type of mortgage loans.
For VA housing loan purposes, the term "veteran"
includes certain members of the Selected Reserve, active duty
service personnel and certain categories of spouses.
This pamphlet should help you to
understand what VA can and cannot do for the home purchaser.
However, it is not a legal document and should not be interpreted
as one Nothing should be taken as a change of law or regulations.
The pamphlet does not attempt to go into detail or into unusual
problems. Information about VA loans is given in a narrative
format followed by questions and answers in those areas of the
greatest concern.
It is suggested that the pamphlet
be read in its entirety. Please pay particular attention to the
information about:
- your responsibility to determine
the condition of the property you purchase, and
- assumption of your VA loan and
obtaining a release of liability.
Any questions you have which are
not answered here should be referred to the Loan Guaranty Division
at the nearest VA regional office, or to your lender who will take
them up with VA if necessary. A list of VA offices may be found in
the Help section.
Also see VA
Pamphlet 26-6 for help in planning the purchase of a home.
Table of Contents
- Find the property suitable
for your needs.
- Go to a lender, and apply for
the loan.
- Present your discharge or
separation papers relating to latest period of service and/or
a Certificate of Eligibility.
- Property is appraised by
approved appraiser.
- Estimate of property's
reasonable value is determined.
- If application is approved,
you get the loan.
Back to Table of
Contents
VA loans offer the following
important advantages over most conventional loans:
- Ensure that all veterans are
given an equal opportunity to buy homes with VA assistance,
without regard to their race, color, religion, sex, handicap,
familial status or national origin.
- No downpayment (unless required
by the lender, the purchase price is more than the reasonable
value of the property as determined by VA, or the loan is made
with graduated payment features);
- A negotiable fixed interest rate
competitive with conventional mortgage interest rates;
- The buyer is informed of the
estimated reasonable value of the property;
- Limitations on closing costs;
- An assumable mortgage. However,
for loans closed on or after March 1, 1988, the assumption
must be approved in advance by the lender or VA. Generally,
this involves a review of the creditworthiness of the
purchaser (ability and willingness to make the mortgage
payments). Be sure to see the section entitled "Loan
Repayment Terms";
- Long amortization (repayment)
terms:
- Right to prepay without penalty
(lenders may require that any partial prepayments be in the
amount of at least 1 monthly installment of principal or $100,
whichever is less);
- For houses inspected by VA
during construction, a warranty from the builder and VA
assistance in trying to obtain the builder's cooperation in
correcting any justified construction complaint.
- Forbearance (leniency) extended
to worthy VA homeowners experiencing temporary financial
difficulty.
Back to Table of
Contents
- The VA appraisal is NOT intended to
be and "inspection" of the property. If you have any
doubts about the condition of the house, it is in your best
interest to seek expert advice BEFORE you legally commit
yourself in a purchase agreement. Most sellers will permit
you, at your expense, to arrange for an inspection by a
qualified residential inspection service and negotiate with
you concerning repairs to be included in the purchase
agreement. Such action can prevent later problems,
disagreements and disappointments. Remember, VA guarantees
only the loan, NOT the condition of the property. It is your
responsibility to be an informed buyer and assure yourself
that what you are buying is satisfactory to you in all
respects.
- If you have a home built, VA
cannot compel the builder to correct construction defects or
otherwise live up to the contract. VA authority is limited to
suspension of the builder from participation in the VA Loan
Guaranty program.
- VA cannot guarantee that you are
making a good investment, or that you can resell the house at
the price you paid.
- VA does not have authority to
provide you with legal services.
Back to Table of
Contents
To get a VA loan, the law requires
that:
- You must be an eligible veteran
who has available home loan entitlement (except in the case of
an interest rate reduction refinancing loan - see 'Interest
Rates' on page 18);
- The loan must be for an eligible
purpose;
- You must occupy or intend to
occupy the property as your home within a reasonable period of
time after closing the loan;
- You must have enough income to
meet the new mortgage payments on the loan, cover the costs of
owning a home, take care of other obligations and expenses,
and still have enough income left over for family support (a
spouse's income is considered in the same manner as the
veteran's); and
- You must have a good credit
record.
Back to Table of
Contents
VA guaranteed loans are made by
private lenders such as banks, savings and loan associations, or
mortgage companies. To get a loan, you apply to the lender. If the
loan is approved, VA guarantees the loan when it is closed. The
guaranty means the lender is protected against loss if you or a
later owner fails to repay the loan.
Questions and Answers
1. How much is the guaranty?
VA will guarantee up to 50 percent
of a home loan up to $45,000. For loans between $45,000 and
$144,000, the minimum guaranty amount is $22,500, with a maximum
guaranty, of up to 40 percent of the loan up to $36,000, subject
to the amount of entitlement a veteran has available. For loans of
more than $144,000 made for the purchase or construction of a home
or to purchase a residential unit in a condominium or to refinance
an existing VA guaranteed loan for interest rate reduction, the
maximum guaranty is 25 percent up to $50,750. (See "Service
Eligibility" section for information about
entitlement.)
2. Is $36,000 the biggest loan a
veteran can get?
No. You may generally borrow up to
the reasonable value of the property or the purchase price,
whichever is less, plus the funding fee, if required. For certain
refinancing loans, the maximum loan is limited to 90 percent of
the value of the property, plus the funding fee, if required. To
determine the reasonable value, VA requires an appraisal of the
property. (Also see "Down payment
Requirements" on page 17.)
3. What is the maximum VA loan?
Although there is no maximum VA
loan (limited only by the reasonable value or the purchase price),
lenders generally limit the maximum VA loan to $203,000 because
most VA loans are sold in the secondary market, which limits VA
loans to that amount.
4. Is a guaranteed loan a gift?
No. It must be repaid, just as you
must repay any money you borrow. The VA guaranty, which protects
the lender against loss, encourages the lender to make a loan with
terms favorable to the veteran. But if you fail to make the
payments you agreed to make, you may lose your home through tore
closure, and you and your family would probably lose all the time
and money you had invested in it, i the lender does take a loss,
VA must pay the guaranty to the lender, and the amount paid by VA
must be repaid by you. If your loan closed on or after January 1,
1990, you will owe the Government in the event of a default only
if there was fraud, misrepresentation, or bad faith on your part.
5. Does VA make any loan
directly to eligible veterans?
Yes, but only to Native Americans
on trust land or to supplement a grant to get a specially adapted
home for certain eligible veterans who have a permanent and total
service-connected disability(ies). See VA Pamphlet 26-93-1 for
information concerning direct loans to Native American Veterans.
See VA Pamphlet 26-69-1 for information concerning specially
adapted housing grants.
Back to Table of
Contents
You are eligible for VA financing
if your service falls within any of the following categories:
Wartime Service. If you
served any time during
- World War II (September 16, 1940
to July 25, 1947),
- Korean Conflict (June 27, 1950
to January 31, 1955),
- Vietnam Era (August 5, 1964 to
May 7, 1975), or
- Persian Gulf War (August 2, 1990
to present (requires service for 2 years or the full period
for which called to active duty, except that exceptions
applying to service between September 7, 1980 and August 1,
1990 also apply to Persian Gulf War. See next page.)),
you must have served at least 90
days on active duty and been discharged or released under other
than dishonorable conditions. If you served less than 90 days, you
may be eligible if discharged because of a service-connected
disability.
Peacetime Service. If your
service fell entirely within any one of the following periods:
- July 26, 1947 to June 26,1950,
- February 1, 1955 to August 4,
1964, or
- May 8, 1975 to September 7, 1980
(if enlisted) or to October 16, 1981 (if officer),
you must have served at least 181
days of continuous active duty and been discharged or released
under conditions other than dishonorable. If you served less than
181 days, you may be eligible if discharged because of a
service-connected disability.
Service between September 7,
l980 (enlisted) or October 16,1981 (officer) and August 1, 1990.
If your entire period of service
was between 9/7/80 (10/16/81) and 8/1/90, you must have:
- Completed 24 months of
continuous active duty or the full period (at least 181 days)
for which you were called or ordered to active duty, and been
discharged or released under conditions other than
dishonorable.
- You may also be determined
eligible if you were discharged for a service-connected
disability, or you were discharged for the convenience of the
government after completing at least 20 months of a 2-year
enlistment,
- or you completed 181 days of
active duty and:
- were discharged because of a
hardship, or
- were determined to have a
service connected, compensable disability, or
- were discharged or released from
active duty for a medical condition which preexisted service
and has not been determined to be service connected, or
- received an involuntary
discharge or release from active duty for the convenience of
the Government as a result of a reduction in force, or
- were discharged or released from
active duty for a physical or mental condition not
characterized as a disability and not the result of misconduct
but which did interfere with your performance of duty.
Note: During the Persian Gulf War,
the foregoing exceptions to the 2-year requirement apply, except
that 90 days of active duty is sufficient in lieu of 181 days.
Active Duty Service Personnel.
If you are now on active duty, you are eligible after having
served on continuous active status for at least 90 days. When an
ending date is established for Persian Gulf War service, a minimum
of 181 days of continuous active duty will be required for persons
who did not have wartime service.
Members of the Selected Reserve.
Individuals who are not otherwise eligible and who have
completed at least 6 years in the Reserves or National Guard, or
been discharged because of a service-connected disability, and (1)
have been discharged under honorable conditions, or (2) have been
placed on the retired list, or (3) have been transferred to an
element of the Ready Reserve other than the Selected Reserve, or
(4) continue to serve in the Selected Reserve are eligible for a
GI loan. (Eligibility for members of the Selected Reserve expires
September 30, 2007.)
Other Types of Service
- Certain United States citizens
who served in the armed forces of a government allied with the
United States in World War II.
- Unremarried surviving spouses of
the above described eligible persons who died as the result of
service or service-connected injuries. (Children of deceased
veterans are not eligible.)
- The spouse of any member of the
Armed Forces serving on active duty who is listed as missing
in action, or is a prisoner of war and has been so listed for
a total of more than 90 days.
- Individuals with service as
members in certain other organizations, services, programs and
schools may also be eligible. Questions about whether this
service qualifies for home loan benefits should be referred to
the Loan Guaranty Division of the nearest VA regional office.
Obtaining
a Certificate of Eligibility
VA determines your eligibility and,
if you are qualified, VA will issue you a certificate of
eligibility to be used in applying for a VA loan.
Should you need to request a
certificate from VA, you must complete VA
Form 26-1880, Request For A Certificate of Eligibility For
VA Home Loan Benefits and submit it to one of our VA
Eligibilty Centers along with acceptable
proof of service as described on the instruction page of the form.
Questions and Answers
1. What service is not eligible?
You are not eligible for VA
financing based on the following:
- World War I service.
- Active Duty for Training in the
Reserves.
- Active Duty for Training in the
National Guard (unless "activated" under the
authority of title 10, U.S. Code).
2. Does this kind of service
provide entitlement to any other veterans' home loan benefit?
Yes. World War I and Active e Duty
for Training service may quality you for a HUD/FHA
veterans' loan.
Under the National Housing Act loan
program, the Federal Housing Administration of the Department of
Housing and Urban Development administers a loan program for
veterans. Financing under this program is available under slightly
more favorable terms than those available to non veterans: VA's
only role in this program is to determine the eligibility of the
veteran and, if qualified, issue a Certificate of Veteran Status
as evidence of entitlement to HUD/FHA loan benefits for veterans.
You may get a Certificate of
Veteran Status by completing VA Form 26-8261a, Request for
Certificate of Veteran Status, and submitting it with the
attachments listed in the instructions to any VA regional office
or center for a determination of eligibility.
All veterans discharged under other
than dishonorable conditions from at least 90 days of service
which began before September 8, 1980, are eligible. Veterans of
enlisted service in a regular component of the Armed Forces, which
began a her September 7, 1980, or officers or reservists who
entered on active duty after October 13, 1982, must have served at
least 24 months of service or the full period for which called to
active duty or Active Duty for Training before being discharged,
unless the discharge was for hardship or disability.
3. What can a veteran do who has
lost his or her original discharge papers and does not have a
legible copy?
The veteran should obtain a
Certificate in Lieu of Lost or Destroyed Discharge. Any VA
Veterans Benefits Counselor at the nearest VA office will assist a
veteran in obtaining necessary proof of military service.
4. Does a veteran's home loan
entitlement expire?
No. Home loan entitlement is
generally good until used. However, the eligibility of service
personnel is only available so long as they remain on active duty.
If they are discharged or released from active duty before using
their entitlement, a new determination of their eligibility must
be made, based on the length of service and the type of discharge
received. Note: Eligibility for members of the Selected Reserve
expires September 30, 2007.
5. How much entitlement does
each veteran have?
Originally, the maximum entitlement
available was $2,000; however, legislation enacted since that time
has provided veterans with increases in entitlement up to the
present maximum of $36,000 (or up to $50,750 for certain loans
over $144,000). The $36,000 may, however, be reduced if
entitlement has been used before to get a VA loan. The amount of
remaining entitlement can be determined by subtracting the amount
of entitlement used from the current maximum available entitlement
of $36,000. (See question 8 below for information on using
remaining entitlement.)
6. Does VA home loan entitlement
provide cash to the veteran?
No. The amount of entitlement
relates only to the amount VA will guarantee the lender against
loss.
7. Can a veteran get used
entitlement back to use again?
If you have used all or part of
your entitlement, you can get that entitlement back to purchase
another home if the following conditions for
"restoration" are met:
- The property has been sold and
the loan has been paid in full, or
- A qualified veteran-transferee
(buyer) must agree to assume the outstanding balance on the
loan and agree to "substitute" his or her
entitlement for the same amount of entitlement you originally
used to get the loan. The buyer must also meet the occupancy
and income and credit requirements of the law.
- ONE TIME ONLY if you have repaid
the prior VA loan in full, but have not disposed of the
property securing that loan, the entitlement you used in
connection with that loan may be restored.
Restoration of entitlement is not
automatic. You must apply for it by completing and returning VA
Form 26-1880 to any VA regional office or center. Application
forms for substitution of entitlement may he requested from the VA
office that guaranteed the loan.
8. If the requirements for
restoration cannot be met, is there any other way a veteran can
obtain another VA loan?
Yes. Veterans who had a VA loan
before may still have "remaining entitlement" to use for
another VA loan. The current amount of entitlement available to
each eligible veteran is $36,000 ($50,750) for certain loans over
$144,000). This was much lower in years past and has been
increased over time by changes in the law. For example, a veteran
who obtained a $25,000 loan in 1974 would have used $12,500
guaranty entitlement, the maximum then available. Even if that
loan is not paid off, the veteran could use the $23,500 difference
between the $12,500 entitlement originally used and the current
maximum of $36,000 to buy another home with VA financing.
Most lenders require that a
combination of the guaranty entitlement and any cash down payment
must equal at least 25 percent of the reasonable value or sales
price of the property, whichever is less. Thus, in the example,
the veteran's $23,500 remaining entitlement would probably meet a
lender's minimum guaranty requirement for a no downpayment loan to
buy a property valued at, and selling for, $94,000. The veteran
could also combine a down payment with the remaining entitlement
for a larger loan amount.
9. May several veterans use
their entitlement to acquire property together?
Yes. The guaranty is based on each
veteran s interest in the property, but the guaranty on the loan
may not exceed the lesser of 40 percent of the loan amount or
$36,000 ($50,750 for certain loans over $144,000).
10. If both a husband and wife
are eligible, may they acquire property jointly and so increase
the amount which may be guaranteed?
They may acquire property jointly,
but the amount of guaranty on the loan may no exceed the lesser of
40 percent of the loan amount or $36,000 ($50,750 for certain
loans over $144,000).
11. May a veteran join with a
non veteran in obtaining a VA loan?
Yes, but the guaranty is based only
on the veteran's portion of the loan. The guaranty cannot cover
the nonveteran's part of the loan. This does not apply to a loan
to a veteran and spouse when the spouse is not a veteran. (Consult
lenders to determine whether they would be willing to accept
applications for joint loans of this type.)
12. Does the issuance of a
certificate of eligibility guarantee approval of a VA loan?
No. The veteran must still be found
to be qualified for the loan from an income and credit standpoint.
Back to Table of
Contents
You may use VA-guaranteed
financing:
- To buy a home.
- To buy a townhouse or
condominium unit in a project that has been approved by VA.
- To build a home.
- To repair, alter, or improve a
home.
- To simultaneously purchase and
improve a home.
- To improve a home through
installment of a solar heating and/or cooling system or other
energy efficient improvements.
- To refinance an existing home
loan.
- To refinance an existing VA loan
to reduce the interest rate and add energy efficiency
improvements.
- To buy a manufactured (mobile)
home and/or lot.
- To buy and improve a lot on
which to place a manufactured home which you already own and
occupy.
- To refinance a manufactured home
loan in order to acquire a lot.
(See VA Pamphlet 26-71-1 for more
information about VA manufactured home loans.)
Questions and Answers
1. Can a veteran get a VA loan
to pay off the mortgage or other liens of record on his or her
home?
Yes. The following refinancing
loans are available under the VA guaranteed home loan program:
a. To pay off the mortgage and/or
other liens of record on the home. In most cases, the loan may not
exceed 90 percent of the reasonable value of the property as
determined by an appraisal, plus the funding fee, if required. The
loan may include funds for any purpose which is acceptable to the
lender, plus closing costs, including a reasonable number of
discount points. A veteran must have available home loan
entitlement. An existing loan on a manufactured home (except as
noted below) may not be refinanced with a VA guaranteed loan.
b. To refinance an existing VA loan
to obtain a lower interest rate. Use of additional loan
entitlement is not required. The loan amount is limited to the
balance of the old loan plus the closing costs, discount points,
funding fee, and up to $6,000 in energy efficient improvements. An
existing VA loan on a manufactured home may be refinanced to
obtain a lower interest rate.
2. Can a veteran get a VA
business loan?
No. but business loans may be
obtained through the SBA (Small
Business Administration). The SBA gives preference to
veterans wishing to obtain small business assistance. For more
information on this financing, consult your telephone directory
for the SBA office nearest you.
3. Can a veteran get a VA farm
loan?
No, except for a farm on which
there is a farm residence which will be personally occupied by the
veteran as a home. The veteran may or may not conduct farming
operations. If farming operations are to be the primary source of
the borrower's income, then it must be established that the
venture has a reasonable likelihood for success. If the borrower
plans to use the residence, but has a source of income other than
the farm which will be the primary source of income, then the
farming operations need not be considered. Other types of farm
financing may be obtained through the Farmers Home Administration
which gives preference to veteran applicants. Additional
information can be obtained by contacting a local office of that
agency, the address and telephone number of which can be found in
your telephone directory.
4. Can a veteran get a VA loan
to buy or construct a residential property containing more than
one family unit?
Yes, but the total number of
separate units cannot be more than four if one veteran is buying.
If more than one veteran is buying, then one additional
family unit may be added to the basic four for each veteran
participating; thus, one veteran could buy four units; two
veterans, six units; three veterans, seven units, etc.
In addition, if the veteran must
depend on rental income from the property to qualify for the loan,
the veteran must (a) show that he or she has the
background or qualifications to be successful as a
landlord, and (b) have enough cash reserves to make the loan
payments for at least 6 months without help from the rental
income.
5. Can a veteran get a VA loan
to purchase a cooperatively owned apartment?
Generally not. Statutory lien
requirements, and the fact that all or almost all of the members
of the cooperatively owned apartment must be veterans who are
using their entitlement, have presented considerable difficulties
in obtaining VA financing for these purchases.
6. Can a veteran obtain a VA
loan for the purchase of property in a foreign country?
No. The property must be located in
the United States, its territories, or possessions. The latter
consist of Puerto Rico, Guam, Virgin Islands, American Samoa and
Northern Mariana Islands.
7. Can a veteran obtain a loan
from a private lender in one State for the purchase of property in
another State?
Yes. However, many lenders limit
their lending operations to certain areas.
8. May a lender require security
from the veteran in addition to the property being purchased?
Yes. This is a matter between the
veteran and the lender. While VA does not require that additional
security be taken, it does not object if the veteran is willing.
Back to Table of
Contents
VA-guaranteed loans are obtained by
making application to private lending institutions.
Lenders may be found by asking in
the community in which you live what firms in the area make home
loans. This information may be obtained from the local chamber of
commerce, by looking in the telephone directory under
"Mortgages," or by inquiring at banks, savings and loan
associations, mortgage companies, real estate brokers' offices,
and other public and private lending agencies. The local VA
regional office will also provide a list of lenders who are active
in the program.
Most mortgage lenders will have the
forms and other necessary papers to apply for a certificate of
eligibility and for the loan and will help you fill them out. Any
lender who does not have the forms may obtain them from the
nearest VA regional office.
If you have a certificate of
eligibility, you should present it to your lender when making your
loan application, because the lender will want assurance that you
are eligible before accepting the application. However, a lender
will undoubtedly discuss the possibility of making a VA loan to
you without seeing the certificate. In fact, many lenders will
assist you in applying for a certificate of eligibility. So, even
if you have not obtained a certificate, you should not delay
making an application to a lender for a loan just for this reason.
To reduce delays in the processing
of the loan, you should be prepared to give the lender the
complete names and addresses and your employee identification
numbers for present and past employers covering a 2 year period.
You should also have available the location and account numbers
for savings and checking accounts and all open and recently closed
debts and obligations.
Questions and Answers
1. If a lender is unwilling to
accept a veteran's application for a loan, what should the veteran
do?
The veteran should see another
lender. The fact that one lender is not interested in making the
loan the veteran wants does not mean that other lenders will not
make the loan.
2. How are VA loans processed?
There are two ways a lender may
process VA home loans-on a "priorapproval' or
"automatic" basis.
When the loan is processed on a
prior approval basis, the lender takes your application, requests
VA to appraise the property, and verifies your income and credit
record. All this information is put together in a loan package and
sent to VA for review. If VA approves the loan, a commitment by VA
to guarantee the loan is sent to the lender. The lender then
closes the loan and sends a report of the closing to VA. lf the
loan complies with VA requirements, VA issues the lender a
certificate of guaranty.
In automatic processing. the lender
still orders an appraisal from VA, but has the authority to
make the credit decision on the loan without VA's approval. The
biggest difference between prior approval and automatic processing
is the time saved by avoiding the need to await VA's approval
before loan closing.
All lenders do not have the
authority to process loans on the automatic basis. Banks, savings
and loan associations, and certain other lenders such as mortgage
companies which are approved by VA have the privilege of
processing VA guaranteed loans using the automatic procedure.
Lenders approved to participate in
VA's Lender Appraisal Processing Program (LAPP) are generally able
to expedite the processing of VA appraisals.
3. What should a veteran do
while waiting for loan approval?
Sometimes it may take longer than
you might expect for the lender or VA to process your loan
application. For instance, your current or former employer may be
slow in returning an employment verification form, or it may take
some time to obtain a credit rating from out of State creditors.
Occasionally, the application VA receives from the lender is
incomplete in some important aspect and requires that VA ask the
lender to furnish additional information before a final decision
can be made. Ordinarily, you should plan on an average of 4 to 6
weeks to obtain a decision on your application.
In any case, information on the
progress of your application should be obtained from the lender,
who will be most aware of developments as they occur.
It is most important that you not
make any commitments based on an expected approval of your loan.
You should not, for example, give notice to your landlord until
the loan is actually approved by VA (or by your lender if the
automatic processing procedure is used). Generally, it is not
advisable to move into the home before the loan is
approved. If for some reason the loan is not obtained, you could
be faced with additional expense and inconvenience.
Back to Table of
Contents
The maximum VA home loan term is 30
years and 32 days; however, the term ay never be for more than the
remaining economic life of the property as determined by the
appraisal.
Questions and Answers
1. May a veteran pay off
a VA loan before it becomes due?
Yes. A VA loan may be partially or
fully paid at any time without penalty. Partial payments may not
be less than I monthly installment or $100, whichever is less.
(Consult your lender.)
2. May the maturity on a
VA loan be extended to reduce the monthly payments?
Yes, provided the veteran and the
lender want to extend it and the extension provides for complete
repayment of the loan within the maximum period permitted for
loans of its type.
3. If a veteran dies before the
loan is paid off, will the VA guaranty pay off the balance of the
loan?
No. The surviving spouse or other
coborrower must continue to make the payments. If there is no
coborrower, the loan becomes the obligation of the veteran's
estate. Protection against this may be obtained through mortgage
life insurance, which must be purchased from private insurance
sources.
4. Will the veteran's payments
always be paid to the same company?
No. It is common practice in the
mortgage lending industry to sell mortgages, often before the
first payment is even due. If your loan is sold, you may find that
you sent your first payment to the wrong place and the new holder
of your loan may send you an overdue notice. Even though you know
you made the payment, and is is up to the two lenders to get it
straightened out, do not ignore the notice. (Most lenders will
notify the veteran if the loan is sold and help straighten out any
problems.)
5. Does having a VA loan
limit a veteran's right or ability to sell the property?
No. A veteran may sell the property
to a veteran or non veteran at any time. However, if the loan was
closed after March 1,1988, and it will be assumed, the
qualifications of the assumer must be reviewed and approved by the
lender or VA.
6. When a veteran sells
the property to someone who will assume the existing VA loan, is
the veteran released automatically from personal liability for
repayment of the loan?
No. If the loan was closed after
March 1, 1988, the lender or VA must be notified and requested to
approve the assumer and grant the veteran release from liability.
If the loan was closed prior to March 1, 1988, the loan may be
assumed without approval from VA or the lender. However, the
veteran is strongly urged to request a release of liability from
VA.
7. If a loan closed prior to
March 1,1988 can be assumed without VA's approvals why should a
veteran be concerned about requesting and obtaining a release from
personal liability?
If a veteran does not obtain a
release of liability, and VA suffers a loss on account of a
default by the assumer or some future assumer, a debt may be
established against the veteran. Also, strenuous collection
efforts will be made against the veteran if a debt is established.
8. How may a veteran obtain a
release of liability from VA?
By having the buyer assume all of
the veteran's liabilities on the VA loan, and by having VA or the
loan holder approve the buyer and the assumption agreement. (If
the VA loan closed prior to March 1,1988, the application forms
for a release of liability must be requested from the VA office
that guaranteed the loan. If the VA loan closed on or after March
1,1988, then the application forms must be requested from the
lender to whom the payments are made.)
9. If a veteran obtains a
release of liability, is restoration of entitlement automatic?
No. Restoration requirements may be
found on page 9.
Back to Table of
Contents
VA will guarantee loans to purchase
homes made with the following repayment plans:
- Traditional Fixed Payment
Mortgage
This type of mortgage loan calls
for equal monthly payments for the life or term of the loan. Each
monthly payment reduces a certain portion of the principal owed on
the loan and pays interest accrued to date.
- GPM (Graduated Payment
Mortgage)
This repayment plan provides for
smaller than normal monthly payments for the first few years
(usually 5 years), which gradually increase each year, and then
level off after the end of the "graduation period" to
larger than normal payments for the remaining term of the loan.
The reduction in the monthly payment in the early years of the
loan is accomplished by delaying a portion of the interest due on
the loan each month and by adding that interest to the principal
balance.
The builder of a new home or seller
of an existing home may "buy down" the veteran's
mortgage payments by making a large lump sum payment up front at
closing that will be used to supplement the monthly payments for a
certain period, usually 1 to 3 years.
- GEM (Growing Equity
Mortgage)!
This repayment plan provides for a
gradual annual increase in the monthly payments with all of the
increase applied to the principal balance. The annual increases in
the monthly payment may be fixed (for example, 3 percent per year)
or tied to an appropriate index. The increases to the monthly
payment result in an early payoff of the loan in about 11 to 16
years for a typical 30 year mortgage.
Back to Table of
Contents
- Traditional Fixed Payment
Mortgage, Buydown Loans, and Growing Equity Mortgage
VA does not require a down payment
if the purchase price or cost is not more than the reasonable
value of the property as determined by VA, but the lender may
require one. If the purchase price or cost is more than the
reasonable value, the difference must be paid in cash from your
own resources.
- Graduated Payment Mortgage
The maximum loan amount may not be
for more than the reasonable value of the property or the purchase
price, whichever is less. Because the loan balance will be
increasing during the first years of the loans a down payment is
required to keep the loan balance from going over the reasonable
value or the purchase price.
Back to Table of
Contents
The interest rate on VA loans can
be negotiated based on prevailing rates in the mortgage market.
Once a loan is made, the interest rate set in the note will stay
the same for the life of the loan.
However, if interest rates go down,
and you still own and occupy (or previously occupied) the property
securing a previous VA loan, you may apply for a new VA loan to
refinance the previous loan at a lower interest rate without using
any additional entitlement.
Back to Table of
Contents
The cost of obtaining any mortgage
can be quite a lot. VA regulates those closing costs that a
veteran may be charged in connection with closing a VA loan. No
commission or brokerage fees may be charged to you for obtaining a
VA loan. However, you may pay reasonable closing costs to the
lender in connection with a VA guaranteed loan.
Although some additional costs are
unique to certain localities, the closing costs generally include
VA appraisal, credit report, survey, title evidence, recording
fees, a 1 percent loan origination fee, and discount points. The
closing costs and origination charge may not be included in the
loan, except in VA refinancing loans.
In addition to negotiating the
interest rate with the lender, veterans may negotiate the payment
of discount points and other closing costs with the seller. Often,
sellers will consider paying some or all of the discount points
required by the lender in order to complete the sale. This can
have a big impact on the amount of cash you must pay out of pocket
in order to complete the purchase. If the seller will not consider
paving points, the veteran may be able to negotiate an interest
rate with the lender which is sufficient to avoid the need to
include any discount points in the transaction.
Back to Table of
Contents
A VA funding fee of 2.00 percent of
the loan amount (2.75 percent for reservists) is also payable at
the time of loan closing. This fee may be included in the loan and
paid from the loan proceeds. The funding fee does not have to be
paid by veterans receiving VA compensation for service-connected
disabilities, or who but for the receipt of retirement pay would
be entitled to receive compensation for service-connected
disabilities, or surviving spouses of veterans who died in service
or from a service-connected disability. If the veteran makes a
downpayment of at least 5 percent, but less than 10 percent of the
purchase price of the property, the funding fee is reduced to 1.50
percent of the loan amount (2.25 percent for reservists). If the
veteran makes a downpayment of at least 10 percent, the funding
fee is reduced to 1.25 percent of the loan amount (2.00 percent
for reservists). If a veteran who has previously obtained a VA
home loan obtains another loan with less than a 5 percent
downpayment, the funding fee is 3.00 percent of the loan amount.
With a downpayment of at least 5 percent, the funding fee is
reduced to the percentages shown above for downpayments of at
least 5 percent, but less than 10 percent, and for down payments
of more than 10 percent.
A more detailed discussion of
closing costs may be found in VA
Pamphlet 26-6.
Back to Table of
Contents
Discrimination in the sale of
housing because of race, color, religion, sex, handicap, familial
status or national origin is prohibited by Federal laws. In
November 1962, Executive Order 11063 banned discrimination in all
federally assisted housing. The "Fair Housing Law,"
Title VIII of the Civil Rights Act of 1968, followed by amending
legislation, required positive action be taken by Federal agencies
to prevent discrimination in all housing. Further, title VIII
protects you from the following acts when they are based on
discrimination on account of race, color, religion, sex, handicap,
familial status or national origin:
- Refusal to deal,
- Discrimination in terms of sale,
- Discriminatory advertising,
- False representations that a
dwelling is not available,
- Blockbusting,
- Discrimination in financing, and
- Discrimination in real estate
services.
These laws provide every person an
equal opportunity to choose suitable housing.
The Department of Veterans Affairs
affirmatively administers the VA housing program by assuring that
all veterans are given an equal opportunity to buy homes with VA
assistance. All VA program participants-builders, brokers and
lenders offering housing for sale with VA financing-must comply
with Executive Order 11063 and the Civil Rights Act of 1968, as
amended.
Builders must sell newly
constructed homes with VA financing to eligible veterans without
regard to the race, color, religion, sex, handicap, familial
status or national origin of the veteran.
Brokers participating in the VA
home loan program must not discriminate against a person on the
basis of race, color, religion, sex, handicap, familial status or
national origin by refusing to show or sell a property; by
discriminating in the terms of the sale; or by representing that
property as not available for inspection.
Lenders participating in the VA
loan program are required by the Civil Rights Act of 1968, as
amended, to act on applications for VA home loans without regard
to the race, color, religion, sex, handicap, familial status or
national origin of the veteran. In addition, the Equal Credit
Opportunity Act prohibits a lender from discriminating against an
applicant on the basis of the foregoing, or on the basis of age or
marital status; because an applicant's income derives from any
public assistance program; or because the applicant has exercised
any right under the Consumer Credit Protection Act. Lenders are
also prohibited from discouraging applications on these grounds.
To ensure that each applicant is fully aware of his or her rights
under the Equal Credit Opportunity Act, a lender must provide each
applicant with the Equal Credit Opportunity Act Notice and a
written statement of the reasons when credit is denied.
Therefore, if you are seeking to
use your entitlement to buy a home, you may be assured that VA
will protect your civil rights and equal housing opportunity.
The following actions, when based
on discrimination because of race, color, religion, sex, handicap,
familial status, or national origin, are recognized violations of
the Federal fair housing law:
- Refusal to negotiate to sell
property.
- Discrimination in terms or
conditions of sale of real property.
- Advertising indicating any
racial, religious, ethnic or gender preference.
- False representations that real
property is not available for inspection or ale.
- Blockbusting or inducing owners
to sell real property by representations regarding entry into
the neighborhood of persons of a particular race, color,
religion, sex, handicap, familial status or national origin
for profit.
- Discrimination in financing,
terms or conditions of a loan, or denying a loan.
If you experience or suspect
discrimination by a builder, broker, or lender, the local VA
office will investigate. To start a VA investigation, submit a
written complaint directly to the local VA office. Your complaint
must describe the discriminatory action, including the date it
occurred, names, addresses and telephone numbers of all parties
involved in the action, and the address of the property involved.
VA has a form for this purpose (VA Form 26-8827, Housing
Discrimination Complaint) which you may request from your local VA
office.
You should note that in many
localities fair housing associations have been organized to assist
you in locating and purchasing a house of your choosing. There may
be such an organization in your area.
When the discrimination concerns
HUD/FHA (Department of Housing and Urban Development/Federal
Housing Administration) home loans and other housing, complaint
letters should be sent to the
Department of Housing and Urban Development, Assistant
Secretary for Fair Housing and Equal Opportunity, Washington, D.C.
20410.
If you are unable to find new homes
available for sale with VA financing in your area or if you are
unable to determine whether particular homes being built are
available for sale with VA financing, we suggest you contact the
local VA regional office. In addition, in many areas VA has
repossessed homes which it will sell to qualified buyers. Inquiry
as to the availability of any VA repossessed homes for sale in the
area in which you are interested may be made by contacting local
real estate brokers.
Another area to be explored is the
existence of State benefits. Many States offer housing programs
which are independent from federal programs. The programs and
benefits, as well as the qualifying criteria, may differ from one
State to the next. Information on State programs may be obtained
from State officials or from the local VA regional office.
Back to Table of
Contents
|
