HOW THE VA HOME LOAN WORKS
The VA loan was signed into law by President Franklin D. Roosevelt, as a part of the original Servicemen's Readjustment Act, also known as the GI Bill of Rights. The GI Bill provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families. It enabled the dream of home ownership to become a reality for millions of veterans.
You can use a VA loan to buy a single-family detached home, townhouse or condominium unit in an ordinary neighborhood or in a VA-approved housing project. You can also use the VA loan to build a home, to simultaneously purchase and improve a home, to improve a home by installing energy-related features, or to buy a manufactured home and/or lot. On manufactured homes, there must be land included with the home and the home must be at least 24 feet wide.
Now that you know the type of properties - How do you know if you are ENTITLED to a VA loan?
It is important for first-time military homebuyers to understand how the VA Loan process works. A VA guaranteed loan is not an automatic benefit. It is available only to veterans and active service personnel who have the income sufficient to cover the mortgage payments.
The Veterans Administration does not function as a lending agency, but instead guarantees the loans extended to veterans by mortgage lenders. VA guaranteed loans are made by private lenders, including banks, savings & loans, or mortgage companies. The VA offers a guaranty to eligible veterans who meet the requirements, which include a good credit rating. The loan must be for the purchase of a home for their personal occupancy. The VA guaranty protects the lender against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.
In addition to purchasing a home you can also use the VA loan to refinance your existing home. Eligible veterans can refinance their original VA insured mortgage by using the VA streamline Refinance Loan, known as an "Interest Rate Reduction Refinance Loan" or IRRRL. The VA streamline refinance loan provides a way for current VA homeowners to lower their interest rate with little or no out-of-pocket costs. You may use the IRRRL to refinance your existing VA loan if you are the veteran or surviving spouse of the veteran the original loan was issued to.
There are many advantages for the borrower. No limit is set on the loan to value ratio for the new loan. A variety of loan packages are available, including the 30-year and 15-year fixed-rate and the 1-year, 3/1 and 5/1 adjustable-rate mortgages. The maximum loan amount is $417,000. In general, there is no credit check, income verification or appraisal required, and the borrower may include all closing costs in the refinance. The new interest rate must be lower than the current interest rate on the loan you are refinancing unless you are converting from a VA ARM loan to a fixed rate loan.
The VA loan is more competitive now than ever before in many cases the payments are lower than the conventional loans. You also do not have to structure a loan as an 80/20 to avoid PMI.
Reprinted from the Sandhills Real Estate Section of the Pilot.
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