VA Financing

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VA Financing - Advantages and DisadvantagesADVANTAGES:


Veteran buyers who have not previously used their home loan benefits may obtain loans up to $417,000 with nothing down. They may purchase homes greater than $417,000 by making down payments on top of the $417,000 VA loan. Some lenders only require 25% down on the sale price over $417,000. The seller or builder may pay the veteran's closing costs or prepaid Items. This feature makes it possible to purchase homes with no out of pocket cash outlay. Lenders may also pay the veterans closing costs and pre-paid items, in exchange for higher interest rates.


The Veterans Administration does not use a gross income/formula like FHA or Conventional lenders. They use a liberal debt ratio and a residual income formula. In addition, they do not require minimum credit scores like most conventional lenders. As a result, most veterans qualify for higher loan amounts than they would under FHA or Conventional guidelines. Veterans who are willing to make some down payment are given more liberal qualifications, due to a reduced foreclosure rate.


VA loans may be assumed at the original interest rate. Loans dated before March 1, 1988 can be assumed without any loan qualification. Loans dated March 1, 1988 and after require qualification to assume, but may be assumed by veterans or non-veterans, occupants or non-occupants, at the original interest rate. The fully assumable non-qualifying loans made before March 1, 1988 are extremely valuable, as the seller can use various creative financing techniques to sell these properties, does not have to pay discount points, worry about a low appraisal, appraisal requirements or the buyer being approved for a loan. A fully assumable non-qualifying VA loan can close in days instead of weeks or months. VA loans made after March 1, 1988 may be sold without qualification, on installment sales without VA or the lender's permission, as long as the title does not change hands and the veteran remains liable. (See VA Assumption Policy).


Since no "Due on Sale" clause was written into VA loans prior to March 1, 1988, these existing VA loans can be sold under lease purchase agreements, contract for deed or wrap-around financing. The seller is also free to carry second or even third mortgages on top of the original VA first mortgage. VA loans made after March 1, 1988 may be sold quickly, without loan qualification using installment sales, (see VA assumption policy).


Veterans may use remaining partial eligibility to purchase homes. That is, if the veteran has only used part of his eligibility, he is free to use the remaining amount or any increases granted retroactively to all veterans as the VA loan guaranty increases. Once the original VA loan has been satisfactorily paid off, that portion of the eligibility is restored to be used again. Veterans who have paid off their VA loan, but have not sold the property can request a one-time reinstatement of their eligibility on that property to use again.



: In some areas of the U.S., sellers are reluctant to sell their homes with VA financing because they fear they will receive low appraisals or be required to make many repairs, both of which could reduce their proceeds check. This fear stems from the days when VA appraisers were "staff" appraisers working directly for the Veterans Administration and thought they were protecting the veterans by requiring numerous repairs or appraising the house for less than the selling price. This problem has been virtually eliminated as VA now uses "fee appraisers" rather than staff appraisers, and most VA appraisals have few or no required repairs. The time frame to obtain a VA appraisal is roughly the same as conventional appraisals.


The time to process a VA loan traditionally has been longer than on Conventional loans. However, VA automatic approvals have cut this processing time to an average of 4-6 weeks for loan closing and some loans close in 2-4 weeks. Making sure the veteran has his Certificate of Eligibility before going to loan application can save several weeks. Many veterans are now getting formal loan approval, before making an offer. This eliminates loan rejection, speeds the time frame to close and is similar to making a "cash" offer. Sellers are more likely to accept offers when the vet buyer is pre-approved for the loan.


COPYRIGHT © JEFF ELIAS 2010 Page 13 VA Fixed Rate Section

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