By Jason Kotar
RISMEDIA, May 27, 2008-With all of the changes and restrictions that have been introduced by Fannie Mae, Freddie Mac and the Mortgage Insurance companies, the one type of loan program that has not been affected is VA loans. As a matter of fact, VA loans now, with few exceptions, are THE 100-percent financing option available for purchasing a home.
Over the past few years, the proliferation of loan programs available often negated the value of a VA loan. The days of “liar loans” are over. Buyer required documentation of income and assets, increased focus on credit scores and declining market policies implemented by Fannie and Freddie have brought VA loans back into vogue. The VA loan program has stayed the course with its loan requirements. Let’s review some of them.
First, eligibility is generally limited to active and retired military personnel, as well as those who served in the National Guard or Reserves. There are other differences from traditional loan programs. The veteran must plan on occupying the home. The types of properties are limited to certain types: one to four family units; condominiums; town houses; and certain manufactured homes. Full documentation is required on all loans. All income must be proven with W-2’s or, if self employed, with tax returns. Employment records must be verified. Simply put, the VA wants to know that the loan that they are guaranteeing has a higher probability of being repaid. There are two other key differences between conventional loans and VA loans; a Certificate of Eligibility and a VA assigned appraisal. Basically, the VA wants to insure that the loan applicant meets their criteria for being considered for a loan and that the appraisal will fairly reflect its reasonable market value.
There are numerous advantages for a veteran to have a VA loan. With few exceptions, no down payment will be required. In addition, no mortgage insurance premiums will be levied. The buyer has a right to prepay without penalties or to assume an existing mortgage. Seller concessions of up to 4 percent are allowed. Loan amounts are allowed up to $417,000 with high cost areas like Alaska, Hawaii, etc. allowed to $625,500. The applicant is only required to prove assets needed for closing. For disabled veterans, property taxes may be reduced as well as VA funding fees.
The VA does not specifically look at an applicants credit score. They do take a hard look at the last two years of payment history. Any judgments and tax liens must be paid as well as any accounts out for collection.
Bankruptcies have to be two years out of discharge. The VA does require a “funding fee” of 2 to 3 percent to be charged for VA loans but, this amount may be rolled into the loan.
One final point, be careful of a VA loan applicant attempting to purchase a foreclosed (short sale) home owned by a Lender. The VA will not approve any repairs to a home prior to the sale to be paid for by the veteran.
I have attempted to cover the main features of the VA loan program. While there are significant differences from traditional loans, the elapsed time to get loans approved and closed, are comparable. The key is to work with mortgage professionals who understand the requirements. With some obvious benefits to your client, ask if they are a veteran during your initial conversation. It may make the difference in their qualifying for a mortgage.
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