Understanding Your VA Loan: Separating Fact from Fiction
VA Home Loan
Serving in the military gives you access to several benefits, such as the VA Home Loan. However, despite the popularity of this product, many servicemembers have yet to fully understand what the VA Loan offers them.
In fact, one of the most common misconceptions about the VA Home Loan is that you can only use your VA Loan privileges only once, and the purchased home must be in the veteran’s name alone, reports the Chicago Tribune. But, the VA Loan — which can offers you up to $417,000 towards the purchase of a home — is a reusable benefit and can be used to buy another home once the original loan is paid off.
Purchasing a home is the most important purchase you can make, and it’s vital you understand your VA Home Loan. The following questions and answers — originally published on Military.com — can help you understand this benefit and tell fact from fiction.
Simply put, a VA Home Loan allows qualified buyers the opportunity to purchase a home with no down payment. There are also no monthly mortgage insurance premiums to pay, limitations on buyer's closing costs, and an appraisal that informs the buyer of the property value. For most loans on new houses, construction is inspected at appropriate stages and a one-year warranty is required from the builder. VA also performs personal loan servicing and offers financial counseling to help veterans having temporary financial difficulties.
You can have previously-used entitlement "restored" one time only in order to purchase another home with a VA loan if:
- The property purchased with the prior VA loan has been sold and the loan paid in full.
- A qualified veteran-transferee (buyer) agrees to assume your VA loan and substitute his or her entitlement for the same amount of entitlement you originally used.
- The property purchased with a prior VA loan is both paid in full and still owned by the veteran, then the entitlement used in connection with that loan may be restored.
Also, veterans who have used a VA loan before may still have remaining entitlement (see chart)
to use for another VA loan. A veteran's maximum entitlement is $89,912, and lenders will generally
loan up to four times your available entitlement without a down payment, provided your income and
credit qualifications are fine, and the property appraises for the asking price. Lenders may
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.
For Alaska, Hawaii, Guam, and U.S. Virgin Islands’ residents, note that maximum original loan amounts have now been increased 50 percent higher for first mortgages.
Remaining entitlement and restoration of entitlement is not automatic. It can be requested through the nearest VA office by completing VA Form 26-1880. The entitlement may also be restored one time only if the veteran has repaid the prior VA loan in full but has not disposed of the property purchased with the prior VA loan.
What service is not eligible for a VA Home Loan? You are not eligible for VA financing solely based upon service in World War I, Active Duty Training in the Reserves, or Active Duty Training in the National Guard. Note: Guard and Reservists are eligible if they were "activated" under the authority of title 10 U.S. Code as was the case for the Iraq/Afghanistan.
Not necessarily. Choose a VA-approved lending institution that can handle your home loan. A lender can help you review your credit history and determine how much of a loan you can qualify for. Be aware that different lenders have different closing costs and other fees, so it pays to shop around.
What types of repayment options are available?
The guarantees 30-year loans with a choice of repayment plans: Traditional fixed payment (constant principal and interest); Graduated Payment Mortgage, or GPM (low initial payments which gradually rise to a level payment starting in the sixth year); and in some areas, Growing Equity Mortgages, or GEMs (gradually increasing payments with all of the increase applied to principal, resulting in an early payoff of the loan). There is no prepayment penalty.
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 $417,000. The VA maximum loan amount in the states of HI, CA and AK was increased to the maximum FHLMC limit for those states, $539,475.
If I was discharged years ago and want to qualify for a VA loan, what forms or other documents will I need?
Everyone is required to obtain a Certificate of Eligibility. If you do not have this Certificate, you will need to apply using VA Form 26-1880 and this will require a copy of DD-214 (Certificate of Release or Discharge from Active Duty) showing character of service. Along with the Certificate of Eligibility, loan applicants will need to document their credit, savings and employment information.
Does a veteran's home loan entitlement expire?
No. Home loan entitlement is generally good until used if a person is on active duty. Once discharged or released from active duty before using an entitlement, a new determination of their eligibility must be made based on the length of service and the type of discharge received.
Reservists are eligible for VA Loans, too. Who qualifies?
Eligibility extends to members who have completed a total of six years in the Selected Reserves or National Guard (member of an active unit, attended required weekend drills and two-week active duty for training) and received an honorable discharge; continue to serve in the Selected Reserves. Individuals who completed less than six years may be eligible if discharged for a service- connected disability. In addition, reservists and National Guard members who were activated on or after Aug. 2, 1990, served at least 90 days and were discharged honorably are eligible. Eligibility for Selected Reservists is due to expire on Sept. 30, 2009.
No, except for a farm on which there is a farm residence that will be personally occupied by the veteran as a home. Other types of farm financing may be obtained through the Farmers Home Administration.
Can I build a home with a VA Home Loan?
Yes. But there are several clauses that may make this difficult to accomplish. Many veterans use their VA Home Loan Certificate of Eligibility to negotiate in good faith a private home construction loan and then refinance the completed home using VA Home Loans.
Can you take out a VA loan for a second home or vacation cabin?
The law requires that you certify that you intend to occupy the property as your home. But it specifically provides that occupancy by the veteran's spouse satisfies the personal occupancy requirement. However, there are no provisions for other family members. VA Home Loans are available for a variety of purposes including building, altering, or repairing a home; refinancing an existing home loan; buying a manufactured home with or without a lot; buying and improving a manufactured home lot; and installing a solar heating or cooling system or other weatherization improvements. You are also allowed to buy income property consisting of up to four units, provided you occupy one of the units.
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.
What is a VA-guaranteed manufactured home loan?
A private lender makes a VA-guaranteed manufactured home loan. The VA will protect the lender against loss if the veteran or a later owner fails to repay the loan. The amount VA will guarantee is 40 percent of the loan amount or the veteran's available entitlement, up to a maximum amount of $20,000. The guaranty amount is not the same as the amount a veteran can borrow.
If a borrower has used a VA loan in the past, can that person be eligible again?
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. Veterans can
have previously-used entitlement "restored" to purchase another home with a VA loan if: the
property purchased with the prior VA loan has been sold and the loan paid in full, or if a
qualified veteran buyer agrees to assume the VA loan and substitute his or her entitlement for the
same amount of entitlement originally used by the veteran seller. The entitlement may also be
restored one time only if the veteran has repaid the prior VA loan in full, but has not disposed of
the property purchased with the prior VA loan.
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