After the 2nd world war, congress passed the Serviceman’s Readjustment Act to reward soldiers returning from war and to help them to re-establish themselves in civilian society. Out of this act was created the department of Veterans Administration (VA).
Lenders who make loans to VA entitled veterans are guaranteed against default up to a specified percentage of loans made. Each veteran is afforded a certificate of eligibility by the VA, which also assigns an appraisal of the home being purchased to ensure that its value meets the required loan security.
VA loan programs are for 15 and 30 year fixed terms. The VA guarantees lenders an amount equal to 25% of a predetermined loan limit which is usually $417,000. Maximum loan amounts, therefore, usually ends up being that amount. However, in areas where home values are high, higher limits allow lenders to loan more.
A certain criteria must be met to qualify as a veteran that includes certain veterans, national guardsmen and even reservists:
- 181 days of peacetime service
- 90 days wartime service
- 6 years of Reserves service
- 6 years of National Guard service
- The surviving spouses of veterans killed in the line of duty
To prove to a lender that an applicant has met the above criteria, an applicant must obtain a certificate of eligibility (COE) from the Veterans Administration.
The advantages to the borrowing veteran are:
No down payment is required – While FHA offers a 3.5% down payment loan, conventional home loans require a down payment of between 10% – 20%. VA borrowers, on the other hand, are able to secure home purchase financing with 0% down.
Prepaying the loan does not attract a penalty – Many conventional loans require a penalty to be paid if the borrower decides to pay the loan off earlier. This penalty, which can be equal to as much as 6 months of interest, is not allowed by VA lenders. Military buyers, therefore, have no fear of incurring a prepayment if they decide to pay their loan off prematurely.
Loan qualification is easier – Since the recent economic meltdown, conventional loan borrowers require high FICO scores, often in the mid to high 700s in order to qualify. Similar to FHA loans, VA loans have a lower qualification FICO score requirements in the low 600s.
Competitive rates – Although they do fluctuate with market conditions, VA loan interest rates are usually slightly lower than those charged for conventional loans.
There is a limit placed on the amount of closing costs that a lender may charge
The loan does not require any private mortgage insurance – Conventional loan borrowers who borrow in excess of 80% of the value of the loan are required to pay private mortgage insurance (PMI). This can range from an annual payment of 0.5% – 1.0% of the loan amount. VA loan borrowers are shielded from this because each loan is backed by the Federal government.
Post Bankruptcy lending opportunities – Conventional loan applicants are will find it hard to qualify after having filed bankruptcy. Qualifying VA applicants, on the other hand, can potentially be successful one year after chapter 7 bankruptcy and only two years after a chapter 13 bankruptcy.
All VA Loans are also eligible for an Energy Efficient Mortgage (EEM).
Hopefully, the above information has been helpful to you. If you have not already done so, please visit my “can you afford mortgage financing” page to get you going. You will then have an idea of whether you can afford mortgage financing, and if so, take the next step, which will be to start talking to a mortgage loan officer.
Our services are always FREE to Buyers, and we contribute $500 towards closing costs if you buy through us, as well as $250 toward our Switch to Green, Switch it Forward Fund, to help fight poverty and climate change.
Let us show you how we can be Your Green Dream Team to help you to Live in a High Performance Green Home, that will Save You Money and help you to Pay Your Mortgage Off Years Earlier, while at the same time, live in a home that is Healthier, More Comfortable, Safer and Kinder To The Earth.
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Marius J Smook – Licensed Real Estate Eco-Broker, LEED AP for HOMES, Home Energy Rater.