Why should a VA-eligible borrower be concerned with where his or her VA home loan comes from? Understanding VA Loan Guaranty Program, where the money comes from and how to get a VA mortgage can help eligible veterans get the most from their VA home loan benefits.

 

The benefits associated with a VA home loan are unique to American veterans and active duty personnel to assist them in buying and keeping homes. Veterans and active military personnel and unremarried surviving spouses who are VA eligible may qualify for VA home financing.  A home financed under the VA Loan Guaranty Program must be used for the borrower’s personal occupancy. 

 

A VA home loan is actually a VA “guarantied” home loan, because the Federal Government guaranties the loan. The VA Loan Guaranty Service is the organization, within the Veterans Benefits Administration under the Department of Veterans Affairs that is in charge of the home loan program. It surprises many that VA mortgage funding comes from VA-approved private lenders such as banks, savings and loans or mortgage companies, and not from any government entity.

 

The advantages to choosing a VA loan over a conventional loan might be great for those veterans who qualify.  A VA mortgage, in most cases, is the best option for borrowers with VA eligibility over conventional loans. Qualifying requirements for credit and income for VA home loans can be less stringent than those of conventional home loans.  No down payment is the norm when it comes to VA loans. And, because no private mortgage insurance (PMI) is required with VA loans, many eligible veterans save significantly each month.

 

A summary of VA home loan benefits is as follows:

 

• Equal opportunity
• $0 down (as long as purchase price does not exceed appraised property value; VA-approved lender requirements may differ)
• Appraised value is made available to buyer, unlike conventional loans
• Interest rate is negotiable
• Funding fee associated with VA loans may be financed into the loan (down payment may reduce fee, VA disability compensation may be considered for fee exemption)
• Same or lower closing costs as conventional loans
• No PMI
• Assumable mortgage
• Prepayment without penalty
• Homes inspected by VA during construction come with builder warranty and VA assistance to obtain cooperation of builder to fix problems
• VA counseling is available to veteran borrowers in loan default due to temporary financial difficulty

 

The Veterans Benefits Improvement Act of 2008 became law on October 10, 2008. The new law increased the maximum VA loan guaranty limit to $729,750.  And, for military personnel qualifying for a VA loan, up to100% of the appraised value of a home can now be refinanced. 

 

The new VA guaranty guidelines help VA-approved lenders establish how much to loan a VA-eligible borrower.  Because VA mortgages are funded by private lenders, it’s up to each lender to determine its requirements for making loans. VA income and credit standards must be complied with; however, lenders can set their own lending policies.

 

VA-approved lenders often charge lower lending fees with VA loans than with conventional loans. The funding fee is required by the Department of Veterans Affairs.  Lenders can charge from 0% to 3.3% of the loan amount when funding a VA loan.  The total loan amount can include the funding fee to keep the transaction truly $0- down. The VA Home Loan Guaranty Program requires the funding fee “in lieu” of private mortgage insurance or PMI. 

 

The VA considers veterans who are 10% disabled or more as a result of active military service exempt from the funding fee.  Those not exempt can reduce the fee by making a down payment.

 

Before being considered for a VA loan, one must obtain a Certificate of Eligibility from the VA.  A VA-approved lender can assist by using automated certificate of eligibility (ACE). Most lenders have access to this Internet-based system and can help with the application required to obtain a Certificate of Eligibility online in a few clicks.  With a lender’s help, ACE can save time provided the applicant is in the system.  Upon receipt of the Certificate of Eligibility, a veteran can go ahead with the VA loan application.