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Veterans Affairs (VA) Benefits - Home Loan Guaranties

This topic discusses one of the Veterans Affairs (VA) benefits, Home Loan Guaranty Services. You may read it in sequence, or jump to a specific section by following the links below:

·          General

·          Eligibility

·          Guaranty Amount

·          Required Occupancy

·          Closing Costs

·          Financing, Interest Rates and Terms

·          Release of Liability, Loan Assumption

·          Loans for Native American Veterans

·          Repossessed Homes

·          Safeguards for Veterans

For information about Funding Fees and Entitlement Amounts for this program, see the Veterans Affairs (VA) Benefits - Home Loan Guaranties Rates topic.

General

VA loan guaranties are made to service members, veterans, reservists and unmarried surviving spouses for the purchase of homes, condominiums and manufactured homes, and for refinancing loans. VA guarantees part of the total loan, permitting the purchaser to obtain a mortgage with a competitive interest rate, even without a down payment if the lender agrees.

VA requires that a down payment be made for the purchase of a manufactured home. VA also requires a down payment for a home or condominium if the purchase price exceeds the reasonable value of the property or the loan has a graduated payment feature. With a VA guaranty, the lender is protected against loss up to the amount of the guaranty if the borrower fails to repay the loan.

A VA loan guaranty can be used to:

·          buy a home;

·          buy a residential condominium;

·          build a home;

·          repair, alter or improve a home;

·          refinance an existing home loan;

·          buy a manufactured home with or without a lot;

·          buy and improve a manufactured home lot;

·          install a solar heating or cooling system or other weatherization improvements;

·          purchase and improve a home simultaneously with energy-efficient improvements;

·          refinance an existing VA loan to reduce the interest rate and make energy-efficient improvements;

·          refinance a manufactured home loan to acquire a lot.

Eligibility

Applicants must have a good credit rating, have an income sufficient to support mortgage payments, and agree to live in the property.

To obtain a VA Certificate of Eligibility, complete VA Form 26-1880, Request for a Certificate of Eligibility for VA Home Loan Benefits, and mail it to the VA Eligibility Center in Winston-Salem, North Carolina.

NOTE: Effective January 1, 2006, the Los Angeles Eligibility Center ceased operations. ALL mailed applications for a Certificate of Eligibility for VA home loan benefits after that date will be processed by the Winston-Salem Eligibility Center.

Additional information on eligibility and addresses for the Center are available on VA's loan guaranty eligibility page on the World Wide Web at:
http://www.homeloans.va.gov/eligibility.htm

Veterans may also have their lenders obtain a Certificate of Eligibility for them through VA's ACE (Automated Certificate of Eligibility) system. This is an online application that, in some cases, can generate a certificate immediately. Not all cases can be processed through this system but, if all necessary information is available, ACE provides the quickest way to determine eligibility.

Periods of Eligibility

·          World War II: (1) active duty service after Sept. 15, 1940, and prior to July 26, 1947; (2) discharge under other than dishonorable conditions; and (3) at least 90 days service unless discharged early for a service-connected disability.

·          Post-World War II: (1) active duty service after July 25, 1947, and prior to June 27, 1950; (2) discharge under other than dishonorable conditions; and (3) 181 days continuous active duty unless discharged early for service-connected disability.

·          Korean War: (1) active duty after June 26, 1950, and prior to Feb. 1, 1955; (2) discharge under other than dishonorable conditions; and (3) at least 90 days total service, unless discharged early for a service-connected disability.

·          Post-Korean War: (1) active duty between Jan. 31, 1955, and Aug. 5, 1964; (2) discharge under conditions other than dishonorable; (3) 181 days continuous service, unless discharged early for service-connected disability.

·          Vietnam: (1) Active duty after Aug. 4, 1964, and prior to May 8, 1975; (2) discharge under conditions other than dishonorable; and (3) 90 days total service, unless discharged early for service-connected disability. For veterans who served in the Republic of Vietnam, the beginning date is Feb. 28, 1961.

·          Post-Vietnam: For veterans whose enlisted service began before Sept. 8, 1980, or whose service as an officer began before Oct. 17, 1981: (1) active duty for 181 continuous days, all of which occurred after May 7, 1975, and discharge under conditions other than dishonorable or early discharge for service-connected disability.

·          24 Month Rule: If service was between Sept. 8, 1980, (Oct. 16, 1981, for officers) and Aug. 1, 1990, veterans must generally complete 24 months of continuous active duty or the full period (at least 181 days) for which they were called or ordered to active 34 duty, and be discharged under conditions other than dishonorable. Exceptions are allowed if the veteran completed at least 181 days of active duty but was discharged earlier than 24 months for (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) service-connected disability.

·          Gulf War: Veterans of the Gulf War era, which began Aug. 2, 1990, and will continue until Congress or the President declares it has ended, must generally complete 24 months of continuous active duty or the full period (at least 90 days) for which they were called or ordered to active duty, and be discharged under conditions other than dishonorable. Exceptions are allowed if the veteran completed at least 90 days of active duty but was discharged earlier than 24 months for (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) service-connected disability. Reservists and National Guard members are eligible if they were activated after Aug. 1, 1990, served at least 90 days, and received an honorable discharge.

·          Active Duty Personnel: Until the Gulf War era is ended by law or presidential proclamation, persons on active duty are eligible after serving on continuous active duty for 90 days.

·          Members of the Selected Reserve: Individuals are eligible if they have completed at least six years in the reserves or National Guard or were discharged because of a service-connected disability. This eligibility expires Sept. 30, 2009. Reservists who do not qualify for VA housing loan benefits may be eligible for loans on favorable terms insured by the Federal Housing Administration (FHA) of the Department of Housing and Urban Development (HUD).

·          Others: Other eligible individuals include unmarried spouses of veterans or reservists who died on active duty or as a result of service-connected causes; spouses of active-duty service members who have been missing in action or a prisoner of war for at least 90 days; U.S. citizens who served in the armed forces of a U.S. ally in World War II; and members of organizations with recognized contributions to the U.S. World War II effort. Eligibility may be determined at the VA Eligibility Centers.

Guaranty Amount

The guaranty amount is the amount of the VA guaranty available to an eligible veteran and may be considered the equivalent of a down payment by lenders.

The basic VA guaranty amount is $36,000. The maximum guaranty amount for purchase or construction loans in excess of $144,000 is equal to 25 percent of the Freddie Mac conforming loan limit determined under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act for a single family residence.

The amount of entitlement varies with the loan amount. Loan guaranty limits are listed in the Veterans Affairs (VA) Benefits - Home Loan Guaranties Rates topic.

VA does not establish a maximum loan amount. However, no loan for the acquisition of a home may exceed the reasonable value of the property, which is based on an appraiser's estimate.

A buyer, seller, real estate agent or lender can request a VA appraisal by completing VA Form 26-1805, Request for Determination of Reasonable Value. The requester pays for the appraisal, often called a "VA appraisal," according to a fee schedule approved by VA. This VA appraisal estimates the value of the property, but is not an inspection and does not guarantee that the house is free of defects. VA guarantees the loan, not the condition of the property.

A loan for the purpose of refinancing existing mortgage loans or other liens secured on a dwelling is generally limited to 90 percent of the appraised value of the dwelling. A loan to reduce the interest rate on an existing VA-guaranteed loan, however, can be made for an amount equal to the outstanding balance on the old loan plus closing costs, up to two discount points, and energy-efficient improvements. A loan for the purchase of a manufactured home or lot is limited to 95 percent of the amount that would be subject to finance charges. The VA funding fee and up to $6,000 in energy-efficient improvements also may be included in the loan.

A veteran who previously obtained a VA loan can use the remaining entitlement for a second purchase. The amount of remaining entitlement is the difference between $36,000 (25 percent of certain loans as previously described) and the amount of entitlement used on prior loans. Remaining entitlement is not necessary for veterans to refinance an existing VA loan with a new one at a lower interest rate.

Required Occupancy

Veterans must certify that they intend to live in the home they are buying or building with a VA guaranty. A veteran who wishes to refinance or improve a home with a VA guaranty also must certify to being in occupancy at the time of application. A spouse may certify occupancy if the buyer is on active duty. In refinancing a VA-guaranteed loan solely to reduce the interest rate, veterans need only certify to prior occupancy.

Closing Costs

Payment in cash is required on all home loan closing costs, including title search and recording, hazard insurance premiums, prepaid taxes and a one percent origination fee, which may be required by lenders in lieu of certain other costs. In the case of refinancing loans, all such costs may be included in the loan, as long as the total loan does not exceed 90 percent of the reasonable value of the property. Interest Rate Reduction Refinancing Loans may include closing costs and a maximum of two discount points.

Loans, including refinancing loans, are charged a funding fee by VA, except for loans made to disabled veterans and unmarried surviving spouses of veterans who died as a result of service. The VA funding fee is based on the loan amount and, at the discretion of the veteran and the lender, may be included in the loan. Funding fee rates are listed in the Veterans Affairs (VA) Benefits - Home Loan Guaranties Rates topic.

Financing, Interest Rates and Terms

Veterans obtain VA-guaranteed loans through the usual lending institutions, including banks, savings and loan associations, building and loan associations, and mortgage loan companies. Veterans may obtain a loan with a fixed interest rate, which may be negotiated with the lender.

Veterans also may obtain an Adjustable Rate Mortgage (ARM) where the interest rate can be adjusted up to one percent annually and up to five percent over the life of the loan. Veterans may choose a hybrid ARM where the initial interest rate remains fixed for three to ten years. If the rate remains fixed for less than five years, the rate adjustment cannot be more than one percent annually and five percent over the life of the loan. For a hybrid ARM with an initial fixed period of five years or more, the initial adjustment may be up to two percent. Adjustments thereafter are limited to one percent annually and six percent over the life of the loan.

If the lender charges discount points on the loan, the veteran may negotiate with the seller as to who will pay points or if they will be split between buyer and seller. Points paid by the veteran may not be included in the loan, except that a maximum of two points may be included in Interest Rate Reduction Refinancing Loans.

The loan may be for as long as 30 years and 32 days.

VA does not require that a down payment be made, except in the following instances: (1) a manufactured home or lot loan; (2) a loan with graduated payment features; and (3) to prevent the amount of a loan from exceeding VA's determination of the property's reasonable value. If the sale price exceeds the reasonable value, the veteran must certify that the difference is being paid in cash without supplementary borrowing. A cash down payment of five percent of the purchase price is required for manufactured home or lot loans.

Release of Liability, Loan Assumption

When a veteran sells a home financed through a VA guaranty to a purchaser who assumes the loan, the veteran may request release from liability to the federal government, provided the loan is current, the purchaser has been obligated by contract to purchase the property and assume all of the veteran's liabilities, and VA is satisfied that the purchaser is a good risk.

A release of liability does not mean that a veteran's guaranty entitlement is restored. If the new veteran buyer agrees to substitute entitlement for that of the veteran-seller, entitlement may be restored to the veteran-seller.

A VA loan for which a commitment was made on or after March 1, 1988, is not assumable without approval of VA or its authorized agent. The person who assumes a VA loan for which a commitment was made on or after March 1, 1988, must pay a fee to VA.

If a person disposes of the property securing a VA-guaranteed loan for which a commitment was made after March 1, 1988, without first notifying the holder of the loan, the holder may demand immediate and full payment of the loan. Veterans whose loans were closed after Dec. 31, 1989, have no liability to the government following a foreclosure, except in cases involving fraud, misrepresentation or bad faith.

Loans for Native American Veterans

On June 15, 2006, the President signed P. L. 109-233, the Veterans Housing Opportunity and Benefits Act of 2006. The law makes the Native American Direct Loan (NADL) program permanent. The previous $80,000 maximum loan amount was eliminated. Instead, the new limit on NADLs is the same as the Federal Home Loan Mortgage Corporation (also known as "Freddie Mac") single-family conventional conforming loan limit. The law also extends eligibility for NADL to a veteran who is not a Native American, but who is married to a Native American non-veteran. To be eligible for such a loan, the qualified non-Native American veteran and the Native American spouse must reside on trust land, and both the veteran and spouse must have a meaningful interest in the dwelling or lot.

VA direct home loans are available to eligible veterans who wish to purchase, construct or improve a home on Native American trust land. These loans may be used to simultaneously purchase and improve a home. Direct loans also are available to reduce the interest rate on existing loans obtained under this program.

A funding fee must be paid to VA. The fee is 1.25 percent for loans to purchase, construct or improve a home. For loans to refinance an existing loan, the fee is 0.5 percent of the loan amount. Veterans receiving compensation for service-connected disability are not required to pay the funding fee. The funding fee may be paid in cash or included in the loan.

The following may not be included in the loan: VA appraisal, credit report, loan processing fee, title search, title insurance, recording fees, transfer taxes, survey charges or hazard insurance.

Repossessed Homes

VA sells homes that have been acquired after foreclosure of a VA-guaranteed loan. These homes are available to both veterans and non-veterans. Contact local real estate agents for available listings or check the Property Management section of VA's home loan guarantee Web site for listings and additional information at:
http://www.homeloans.va.gov/

Safeguards for Veterans

The following home loan guarantee safeguards have been established to protect veterans:

·          Homes completed less than a year before purchase with VA financing and inspected during construction by either VA or HUD must meet VA requirements.

·          VA may suspend from the loan program those who take unfair advantage of veteran borrowers or decline to sell a new home or make a loan because of race, color, religion, sex, disability, family status or national origin.

·          The builder of a new home is required to give the purchasing veteran a one-year warranty that the home has been constructed to VA-approved plans and specifications. A similar warranty must be given for new manufactured homes.

·          In cases of new construction completed under VA or HUD inspection, VA may pay or otherwise compensate a veteran borrower for correction of structural defects seriously affecting livability if assistance is requested within four years of a home-loan guaranty.

·          The borrower obtaining a loan may only be charged the fees and other charges prescribed by VA as allowable.

·          The borrower can prepay without penalty the entire loan or any part not less than the amount of one installment or $100.

·          VA encourages holders to extend forbearance if a borrower becomes temporarily unable to meet the terms of the loan.

See also:

Veterans Affairs (VA) Benefits - Home Loan Guaranties Rates

Source

http://www.homeloans.va.gov/

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