Understanding Veterans Affairs Mortgages

By Author: Peter Wendt
Total Articles: 34
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The U.S. Department of Veteran Affairs (VA) guarantees an approved lender reimbursement for any loss -- up to a maximum 25 percent of the guaranty loan limit -- suffered as the result of a distressed sale. The 2012 loan guaranty limit for the majority of the country is $417,000, although some counties are as high as $625,500. Therefore, in most of the country, the VA reimburses lenders to a maximum 25 percent amount of $104,250. The VA doesn't usually lend the money; it simply guarantees the lenders. The lenders -- not the VA-- set the interest rate on the loan. Active duty, reservists, retired and honorably discharged U.S. veterans may be eligible if they meet the lender's underwriting criteria. A lender requires a veteran’s Certificate of Eligibility that it usually retrieves online from the VA. VA loans are either fixed rate or adjustable rate 30-year loans.

Advantages

VA loans are attractive because no down payment is required. Lenders provide 100 percent financing to qualified borrowers. In addition, no lender’s monthly insurance premium is required and this saves the borrower a considerable amount ...
... of money.

Property Eligibility

VA loan are for owner-occupied primary residences that consist of one-to-four units. Vacation homes and second homes aren’t eligible. However, you can purchase a duplex, as long as you live in one of the units.

Appraisal

A VA-approved appraiser conducts an appraisal and issues a certificate of reasonable value. The property must appraise for the offer price or the borrower needs to pay the difference at the closing.

Credit Report

Lenders, not the VA, decide on a minimal acceptable credit score. When credit is tight, that score is likely to be higher, although lenders place less emphasis on it for a VA applicant.

Debt to Income Ratio

It’s not the total debt or the total income that’s important; what matters is the relationship between the two. Projected monthly expenses—credit card bills, installment loans, mortgage payment, homeowners’ association and maintenance fees, one month’s property tax, one month’s hazard insurance, child support and alimony -- should not exceed 41 percent of the borrower’s gross monthly income.

Closing Costs

The VA currently charges a funding fee of 2.15 percent of the loan amount as a one-time closing cost. This money helps create a pool of reimbursement funds. The buyer may negotiate for seller concessions that require a seller to pay for all or part of the borrower’s closing costs. The lender often charges points at closing for originating the loan or for offering a discounted interest rate; each point costs one percent of the loan amount. Additional standard costs include title insurance, recording fees and a year’s hazard insurance paid in advance.

More information available in veterans home loan or in valoancenter .