69 years ago, the United States government created a military loan guaranty program to help returning service members purchase homes. The result was what is known today as the VA Loan.
The VA loan is a mortgage loan issued by approved lenders and guaranteed by the federal government. From the beginning, the VA Loan program has helped place more than 20 million veterans and their families secure affordable home financing.
I, personally, have worked with many clients in Central Florida; specifically in Osceola County (Saint Cloud and Kissimmee), purchase homes through the VA loan program. Below we will talk about the many benefits of the VA Loan, discuss the eligibility requirements and the next steps.
THE MAIN BENEFITS OF A VA LOAN:
- NO MONEY DOWN
- COMPETITIVE INTEREST RATES
- NO PRIVATE MORTGAGE INSURANCE
Here is the full list, as taken directly from the Veterans Affairs site:
- No down payment required (unless required by the lender or the purchase price is more than the reasonable value of the property).
- Buyer informed of reasonable value.
- Negotiable interest rate.
- Ability to finance the VA funding fee (plus reduced funding fees with a down payment of at least 5 percent and exemption for veterans receiving VA compensation).
- Closing costs are comparable with other financing types (and may be lower).
- No mortgage insurance premiums.
- An assumable mortgage.
- Right to prepay without penalty.
- For homes inspected by VA during construction, a warranty from builder and assistance from VA to obtain cooperation of builder.
- VA assistance to veteran borrowers in default due to temporary financial difficulty.
Basic Allowance for Housing
Basic Allowance for Housing (BAH) is a significant benefit for qualified active military members. Lenders can count your Basic Allowance for Housing as effective income, which means you can use BAH to pay some or all of your monthly mortgage costs.
BAH varies based on your pay grade, your geographic location and your number of dependents.
No Pre-Payment Penalty
With many different type of loan types, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The pre-payment penalty is a way for financial institutions to recoup some of that money.
The VA Loan allows borrowers to pay off their home loan at any point without having to worry about a pre-payment penalty. With the absence of a pre-payment penalty, borrowers are free to consider future home purchases and refinancing options.
ELIGIBILITY: WHO IS ELIGIBLE FOR A VA LOAN?
“Am I eligible for a VA Loan?” Through dedicated service to our country, military service members and veterans qualify for a range of benefits earned through their service.
- Active-duty personnel
- Reservists/National Guard members
- Some surviving spouses
While the VA Loan is designed specifically for those who served, there are a handful of requirements. In order to qualify for a VA Loan there are specific service conditions each borrower must meet.
- You have served 90 consecutive days of service during wartime or…
- You have served 181 days of services during peacetime or…
- You have more than 6 years of service in the National Guard or Reserves or…
- You are the spouse of a service member who died in the line of the duty or as a result of a service-related disability
HOW DO VETERANS GET VA LOANS?
Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program, but will need a Certificate of Eligibility from the VA to prove to the lender they are eligible for a VA loan. Lenders can also get the certificate on behalf of their clients.
VA Certificate of Eligibility:
All recipients of a VA Loan must first obtain a Certificate of Eligibility (COE), a formal document that explains what VA entitlement you possess, through the Department of Veterans Affairs. Many lenders will walk you through, or handle this process for you.
VA Loan applicants may also obtain their Certificate of Eligibility by filling out a Certificate of Eligibility Request Form (VA Form 261880). The form can be downloaded through the Veterans Administrations site and mailed directly to the VA.
Additional Eligibility Requirements:
Although the VA determines the guidelines for those who are eligible for the VA Loan benefit, private lenders who finance the home purchases have an additional set of criteria a potential borrower must satisfy, including debt, income and credit requirements
When you apply for a VA Loan, your VA mortgage specialist will pull your credit score from the three leading credit agencies, as well as examine your debt-to-income ratio.
Finally, a veteran applying for a VA Loan must not have been dishonorably discharged.
STANDARD REGULATIONS AND FEES:
Although the VA Loan is a federal program, the government generally does not make direct loans to veterans. Instead, private lenders finance the loan while the Department of Veterans Affairs offers a guaranty.
This guaranty, which protects the lender against total loss should the buyer default, provides incentive for private lenders to offer loans with better terms.
In most parts of the country, veterans who qualify for the VA Loan can purchase a home worth up to $417,000 without putting any money down; however, with the 2013 VA Loan Limits, borrowers in high-cost counties may be able to purchase homes far exceeding that amount without a down payment.
The VA Funding Fee goes directly to the VA to ensure the program keeps running for future generations of military homebuyers by removing any additional burdens off tax payers and veterans. The fee varies depending on the borrower’s circumstances and does not apply for veterans with service-connected disabilities. For example, if this is your first time using the VA Home Loan Program, the funding fee is typically 2.15 percent of the purchase price of the home. For subsequent use of your VA Loan benefit, the fee is 3.3 percent.
VA borrowers can roll the funding fee into their overall loan amount. The VA also limits closing costs for veterans and allows sellers to pay most or all of those expenses. Many of our borrowers purchase a home with no money due at closing.
Questions about whether you qualify?
As a licensed Realtor with over 10 years of experience, please feel free to contact me, and I will put you in touch with a qualified VA Loan Lender and help you find the perfect home!
All my best,
Kelly Foster, Licensed Realtor
Florida Realty Investments
321-946-1004 – Direct
Serving: Orange, Osceola, Lake, Polk and Seminole County