Military Housing, rentals, home buying, real estate, VA home loans - Army Times

Housing: VA home loans

Service members and veterans who decide to buy a house are eligible for a home loan guaranty offered by the Department of Veterans Affairs.

VA does not make the loans, but rather guarantees them, which minimizes lenders’ risks and reduces their losses in a foreclosure. The money comes from private lenders who volunteer to participate. Because of the guaranty, lenders are willing to offer larger mortgage loans than service members might otherwise qualify for.

A VA loan can be used to buy a house, townhome or condominium; a mobile home, with some restrictions; or a mobile home lot and a farm (but not farm machinery or livestock).

VA buyers and lenders can negotiate interest rates. Discount points also are negotiable and can be paid by the buyer or seller.

VA generally does not require a down payment, although the lender might. If so, the down payment on a VA loan is minimal.

Buyers of mobile homes (not on a permanent foundation), however, must make a minimum down payment of 5 percent. Generally, VA lenders will lend up to four times the available entitlement without requiring a down payment.

VA does not set a maximum loan amount. However, lenders generally will lend qualified veterans up to four times the basic maximum entitlement of $36,000. This means a typical ceiling for a loan with no down payment is $144,000 ($36,000 times four).

In certain cases for loans above $144,000, the maximum entitlement can be increased to $104,250. That would enable a qualified person to borrow four times that amount, or $417,000, without a down payment.

In Hawaii, Alaska, Guam and the U.S. Virgin Islands, designated as high-cost areas, qualified veterans can get a no-down-payment loan of up to $625,500. These maximums are subject to change each year. Changes are typically announced in November and December, effective the following January.

Entitlement. There is no restriction on the number of times VA-backed loans can be obtained, as long as there is enough available entitlement to obtain the loan.

A veteran who bought a home using a VA loan can sell the home, pay off the loan and thus “restore entitlement,” becoming eligible for a new VA loan.

Veterans also can have their entitlement restored without disposing of the property as long as the loan has been paid in full — but they may do this only once.

Eligibility also can be restored if the person buying the home is an eligible veteran who assumes the loan and substitutes his entitlement for that of the veteran who originally bought the home.

Funding fees. Recipients of VA home loans pay a funding fee similar to user fees or origination fees paid by civilian borrowers. Funding fees offset losses when borrowers default on loans.

VA borrowers are not required to pay an up-front funding fee to secure a loan and can include the fee as part of the loan amount.

The funding fee for loans with a down payment of less than 5 percent is 2.15 percent or 2.4 percent for those qualifying based on service in the National Guard or Reserve. It is lower for veterans making down payments of 5 percent or more.

VA also charges a funding fee to second-time users of the loan program. This “subsequent use” fee is 3.35 percent of the loan amount unless the veteran makes at least a 5 percent down payment, which reduces the fee.

Veterans who have a service-connected disability for which they receive compensation are exempt from any funding fee. Also, veterans who are still on active duty, but who have been rated as eligible to receive compensation for a service-connected disability, may be entitled to a waiver of the funding fee if they wish to close on a loan before being released from the military. Under the laws of some states, disabled veterans also may qualify for a waiver of property taxes.

There is an additional option for those who have VA-approved home loans — the Interest Rate Reduction Refinancing Loan. This type of refinancing generally requires no credit underwriting and is used to lower the interest rate and payment. The funding fee is 0.5 percent.

Refinancing. A VA loan can refinance an existing mortgage or be used to improve, repair or alter a dwelling owned and occupied by a veteran. On loans to refinance an existing VA loan to lower the interest rate (IRRRL), closing costs — including up to two discount points — can be included in the loan.