The Department of Veterans Affairs Home Loan Program

VA-Guaranteed Home Loans for Veterans

The main purpose of the VA home loan program is to help veterans finance the purchase of homes with favorable loan terms and at a rate of interest which is competitive with the rate charged on other type of mortgage loans. As with FHA loans, the VA will approve individuals using much easier credit standards than conventional loans.

6 Steps in Arranging a Veteran's Guaranteed Loan.

Find the property suitable for your needs.

Apply for the loan.

Be prepared to present your discharge or separation papers and/or a Certificate of Eligibility.

We will order a property appraisal by an approved appraiser.

Estimate of property's reasonable value is determined.

If application is approved, you get the loan.

VA-guaranteed financing is available for any of the following:

To buy a home.
To buy a townhouse or condominium unit in a project that has been approved by VA.
To build a home.
To simultaneously purchase and improve a home.
To refinance an existing home loan.
To refinance an existing VA loan to reduce the interest rate.
To buy a manufactured (mobile) home and/or lot.

Refinancing Loans Are Available:

a. To pay off the mortgage and/or other liens of record on the home. In most cases, the loan may not exceed 90 percent of the reasonable value of the property as determined by an appraisal, plus the funding fee, plus closing costs, including a reasonable number of discount points. A veteran must have available home loan entitlement.

b. To refinance an existing VA loan to obtain a lower interest rate, commonly called "VA Streamline", due to the ease and quickness of the process. The loan amount is limited to the balance of the old loan plus the closing costs, discount points, funding fee, and up to $6,000 in energy efficient improvements.

APPLYING FOR A VA LOAN

VA-guaranteed loans are obtained by making application to private lending institutions, not the Veterans Administration. Independent Mortgage will have the forms and other necessary papers to apply for a certificate of eligibility as well as for the loan and can help you fill them out.

If you already have a certificate of eligibility, you should present it to us when making your loan application. However, our loan officers will be happy to discuss the possibility of making a VA loan to you without seeing the certificate. In fact, we will assist you in applying for a certificate of eligibility. So, even if you have not obtained a certificate, you should not delay making an application for a loan after locating a home.

You can reduce delays in the processing of the loan, if you are prepared to provide the complete names and addresses and your employee identification numbers for present and past employers covering a 2 year period. You should also have available the location and account numbers for savings and checking accounts.

Why Independent Mortgage vs. other lenders?

There are two ways a lender may process VA home loans - on a "prior approval" or "automatic" basis.

When the loan is processed on a prior approval basis, a lender takes your application, requests VA to appraise the property, and verifies your income and credit record. All this information is put together in a loan package and sent to VA for review. If VA approves the loan (a sometimes lengthy process), the lender then closes the loan and you get your home.

At Independent Mortgage, we use automatic processing. We have the authority to make the credit decision on the loan without VA's approval. The biggest difference between prior approval and automatic processing is the time saved by avoiding the need to await VA's approval before loan closing.

All lenders do not have the authority to process loans on the automatic basis. Independent Mortgage is privileged to be approved for processing VA guaranteed loans using the automatic procedure.

A veteran may sell the property to a veteran or non veteran at any time. However, if the loan will be assumed, the qualifications of the assumer must be reviewed and approved by the lender or VA.

TYPES OF VA HOME LOANS

Traditional Fixed Payment Mortgage. Typically 15 to 30 year terms. No downpayment required if property value is sufficient to cover the loan.
GPM (Graduated Payment Mortgage). Smaller payments in the initial 5 years allow for qualification with lower incomes. Some downpayment required.

Buydowns. Seller "buys down" vet's mortgage payments in the first few years with a lump sum payment at closing to supplement vet's payments. No downpayment required.

VA does not require a down payment if the purchase price or cost is not more than the reasonable value of the property as determined by VA. If the purchase price or cost is more than the reasonable value, the difference must be paid in cash from your own resources.

However, if interest rates go down, and you still own and occupy (or previously occupied) the property securing a previous VA loan, you may apply for a new VA loan to refinance the previous loan at a lower interest rate without using any additional entitlement.

CLOSING COSTS

The VA regulates the closing costs that a veteran may be charged in connection with closing a VA loan. No commission or brokerage fees may be charged to you for obtaining a VA loan. However, you may pay reasonable closing costs to the lender in connection with a VA guaranteed loan. Although some additional costs are unique to certain localities, the closing costs generally include VA appraisal, credit report, survey, title evidence, recording fees, a 1 percent loan origination fee, and discount points. The closing costs and origination charge may not be included in the loan, except in VA refinancing loans.

Often, sellers will consider paying some or all of the discount points required in order to complete the sale. This can have a big impact on the amount of cash you must pay out of pocket in order to complete the purchase. If the seller will not consider paying points, the veteran may take an interest rate sufficient to avoid the need to include any discount points in the transaction.

Except in certain disability circumstances, a VA funding fee of 2.00 percent of the loan amount (2.75 percent for reservists) is also payable at the time of loan closing but may be included in the loan. If the veteran wishes to make a downpayment, the funding fee can be reduced to as little as 1.25%. A more detailed discussion of closing costs may be found in VA Pamphlet 26-6.

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Last modified: September 26, 2006