Use your benefits
Veterans guess what? By taking advantage of the VA’s loan guarantee program, you can now afford to buy a home in the Bay Area. Vets will have to stick to the East Bay to get 100% financing (San Francisco and San Mateo Counties are still a little pricey) on a home but there are a surprising number of great homes available at affordable prices.
A VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs. Like FHA loans (also government guaranteed) lenders qualified by the Veteran’s Administration make the actual loan.
The VA loan was designed to offer long-term financing to American veterans or their surviving spouses (provided they do not remarry). To find out if you qualify for a VA loan click here.
The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and to help veterans purchase properties with no down payment.
The VA makes 100% financing possible with entitlements for veterans. The entitlement acts as a veteran’s down payment and is available for all veterans or surviving spouses. Entitlements differ for each veteran with the average basic entitlement amount around $36,000. To find out more about VA entitlements for veterans click here.
Unlike a conventional/FHA guaranteed loan, the VA loan allows veterans 100% financing without private mortgage insurance or a 20% second mortgage. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA and is allowed to be financed.
In a purchase, veterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI (private mortgage insurance), more of the mortgage payment goes directly towards qualifying for the loan amount. This allows for larger loans with the same payment.
VA loans allow veterans to qualify for loans amounts larger than traditional Fannie Mae / conforming loans. VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28-35% for a conforming loan.
As of January 1, 2006, the maximum VA loan amount with no down payment is $417,000 and can be as high as $625,500 in certain high cost areas. VA also allows the seller to pay all of the veteran's closing cost as long as the cost do not exceed 4% of the sales price of the home.
To find out the VA loan limits for your area click here
Veterans must qualify for a VA loan like any other potential borrower. However, because the VA guarantees the loan to the lender, qualifying for a VA loan is not as difficult as qualifying for a FHA, conventional, or jumbo loan. To find out more about what veterans need to qualify for a VA loan click here.
Rates for VA loans are comparable to FHA rates. The range currently is between 5-6% depending on how qualified the applicant is. Like all loans the higher the applicant’s credit and the lower their debt is the lower the interest rate will be.
Veterans looking to purchase a home should get a VA loan approval before starting to house hunt. VA loans take a little longer to fund than other types of loans. The VA loan process is comparable in time to the FHA loan process. Both these types of loans take from 45 to 60 days from application through funding so it is best to be approved before looking.
Quick facts about VA loans:
• Equal opportunity for all qualified veterans to obtain a VA loan
• No down payment, (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% and exemption for veterans receiving VA compensation)
• Closing costs are comparable with other financing types (and may be lower).
• No mortgage insurance premiums
• VA loans are assumable
• No prepay penalties
• Available in fixed or adjustable rate amortization periods (30 and 15 year FRMs and 3/1, 5/1 ARMs)
• Available for most property types (including single family homes, 2-4 unit properties, VA approved condos, PUDs, and mobile homes) as long as they are owner occupied
• VA assistance to veteran borrowers in default due to temporary financial difficulty
• Qualified veterans can refinance up to 90% of the value of their current home
Want more information about VA or FHA loans? Want to know where the best deals on homes are in the Bay Area? Want to know how a short sale can benefit a homeowner facing foreclosure? Have a question about loan modifications? Want to know how to buy REO properties?
I love answering reader’s questions. Send an email with your real estate, loan, loan modification, or foreclosure questions to america@vgrouprm.com. I will either answer in a future column or contact you directly with more information. Thanks again for your questions
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