June 27, 2013
Island Moon
Island Living
A 11
VA Loan, well it’s a Guaranty. By Mike Raymor Michael.Raymor@gmail.com I got a bunch of questions from my last article “Texas Takes Care of Taxes for Disabled Veterans” asking me for information about VA Loans. The questions came from both people interested in selling their homes and checking that little box that says they would accept a VA loan and from veterans curious about how to qualify.
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To start with, a VA Loan technically isn’t a loan; it’s a guaranty. A government guaranty…Yes, that’s an oxymoron… a story for a different day. The following is a simplified version of the VA Home Loan Guaranty Program. If you would like more information about this program, please visit www. benefits.va.gov/homeloans or email me and we can set up a time to talk about what specific questions you have. First, why would one use a VA Purchase Loan? It helps a veteran purchase a home with competitive interest rates, often without a down payment or private mortgage insurance if they have found it difficult to find financing elsewhere. Where does the money come from? Private lenders handle most of the VA Home Loans; the VA simply “stands behind” the loan by guarantying a portion of it. Meaning that if something goes wrong and the borrower is no longer able to make payments the private lending institution can go to the VA to cover any losses they might incur. The guaranty is basically “insurance” that the VA provides the lender. What are other advantages for a veteran to use a VA Home Loan? No down payment as long as the sales price doesn’t exceed the appraised value of the home, no private mortgage insurance, the VA limits the amounts that the veteran pays at closing, the closing costs may be paid by the seller, there is no charge for paying off the loan early, and the VA can assist the veteran if they are having trouble making payments. How does one know if they are eligible for a VA Home Loan? One must have an acceptable credit rating, proof of sufficient income, and a valid Certificate of Eligibility (COE) (for more details about the COE please visit www. benefits.va.gov/homeloans or email me and I’ll send you the table). In addition to veterans, a spouse of a veteran may also qualify for the program if they meet certain conditions set forth by the VA. What can the VA home loan program be used for? To buy a home or condo unit in a VAapproved project, build a home, simultaneously
purchase and improve a home, make improvements to a home by installing energyrelated features or making energy efficient improvement, or buy a manufactured home and/ or lot. What is the buying process (note: this a simplified version of the process)? Find out if the veteran is eligible (a real estate professional can help you with this process), find a lender, get the COE, find a home – write a contract, make sure that it contains a “VA Option Clause”, apply for the VA Loan, the loan is processed, and close on your new home. What fees are associated with a VA Home Loan? Generally, most veterans who use the VA Home Loan Guaranty must pay a funding fee. This fee is a percentage of the loan that varies based on four categories: the type of loan, military category, first-time or subsequent loan user, and if the veteran makes a down payment. The veteran has the option to finance the funding fee or pay it in cash, but it must be paid at closing. There are some exceptions to paying the fee – veterans who are receiving VA compensation for a service-connected disability, or Vets who would receive such compensation, but instead receive retirement/active duty pay, or surviving spouses of a veteran who died in service or from a service connected disability. (If you would like more info about the funding fee please visit www.benefits.va.gov/homeloans or email me and I’ll send you the table). Are there any other costs? Yes, since you are dealing with a private lender there are charges for interest and other closing fees and charges. The VA has a general set of “rules” that follow: the lender sets the interest rate, discount points, and closing costs, not the VA. Closing costs may be paid by the purchaser, seller or shared. The purchaser is not allowed to pay for a termite report, unless it is a refinance. No commissions, brokerage fees, or “buyer broker” fees may be charged to the veteran buyer. Well, that is a ton of information compacted into a short article. Hopefully you aren’t more confused about the program than when you started reading it. As I mentioned in the beginning, this is a simplified version and if you are serious about using a VA Loan I encourage you to speak with a real estate professional about what financing options you have. We may not have all the answers, but we’ll do our best to find them. Mike Raymor is a Realtor® with Mary Melick Real Estate, a locally owned real estate company, here on “The Island”. Learn more about Mike by going to www.marymelick.com