• Maximum loan amount: Although there is no maximum of the value of the home you can purchase, there is a maximum VA loan amount. Without a down payment, in 2008, the maximum VA loan amount you can take is $417,000, with 25% of that value guaranteed by the VA.

• One-time funding fee: Congress enacted a one-time funding fee for VA loans, with the fee ranging from 1.25% to 3%, dependent upon the length of the veteran’s service and number of VA loans he or she already has. This fee can be lowered if you place a down payment of a minimum of 5%.

• Varying interest rates: Keep in mind that the interest rates may or may not be better than your conventional loan. Indeed, you do have the option of a fixed-interest or variable interest mortgage with a VA loan, but this does not mean that you will obtain a better interest rates. When you are considering the type of mortgage to obtain, make sure you compare your interest rates – as this value will make a significant impact on how much money you will pay in the long-term.

Remember, a VA loan guarantee does not overcome unsatisfactory credit or employment income that will not sufficiently cover your mortgage payments. A VA loan guarantee is not a gift; it is assistance from the government in the form of guaranteeing the lender that should you not repay your loan, the lender will not lose the investment.

The citizens of our nation are grateful to the service personnel who have answered the call to arms in war and in peace. The VA Home Loan Guarantee program is one way to show support for those who have put themselves in harm’s way on our behalf.

• An IRRRL is used for veterans who want to refinance an already existing VA loan in order to get a lower interest rate, and a Cash Out is used to pay off any debts or take money out of equity for whatever your needs.

• With an IRRRL the interest rate must be lower than the mortgage loan you have now unless you are refinancing into an ARM or for energy efficient home improvements, and with a Cash Out you can refinance into any interest rate.
• With a Cash Out refinance there is no monthly payment minimum or maximum requirements, and with an IRRRL the new payment needs to be lower than the old payment unless you are refinancing from an ARM to a fixed interest rate or are financing the cots of energy efficient home improvements.
• With an IRRRL you can only refinance the existing loan plus fees and the cost of energy efficient home improvements, but with a Cash Out refinance you can take out cash from your equity as long as it does not go over 90% of the appraised value of the home.
• With a Cash Out refinance you are guaranteed $36,000 to be insured by the VA on your new loan, and with an IRRRL you are guaranteed 25% of your loan amount.
• An IRRRL can have points on the loan but only 2 points are allowed to be financed into the new mortgage. With a Cash Out refinance you are allowed to have any amount of negotiated points in your loan as long as you stay below the 90% home value limit.

Both of these VA refinancing options are available to veterans who have their entitlement intact. If you have a current loan that is not guaranteed by the VA then you should consider refinancing with a VA loan in order to possibly get a better interest rate and more favorable terms. Be sure to consider the attributes and guidelines of each type of refinancing option before you choose which one to use.

Don’t be one of those people.  The U.S. is currently in a foreclosure crisis because of poor and predatory lending practices.  Many people are losing their homes because they were taken advantage of by lenders who allowed these people to get mortgages with terms that they knew they could not afford in the future.  Luckily for veterans, the VA offers housing counseling to avoid such problems.

To avoid this, or if you fell victim to these predatory practices in the past, you need to become educated on the different types of mortgages available and what they mean. This is not a substitute for housing counseling, which the VA requires for people who want to use the VA Home Loan Guarantee Program to purchase a home. The following is just a list of mortgage types that the VA allows and information for potential homebuyers and people wishing to refinance to become educated so that you know which mortgage is the best for your needs.

•           Adjustable rate mortgages.  These are sometimes useful, but were responsible for a lot of foreclosures recently.  ARM loans offer an introductory low fixed interest rate that is usually around three years.  Then after the three years is over the interest rate can increase a lot.  It can cause the mortgage payment to double.  This type of loan is only good for people who know they are only going to own their home for a short period of time and then sell, or for people who can definitely refinance before their adjustable rate kicks in and their monthly mortgage payment begins to increase.  Many people lost their homes due to the low introductory rate being very affordable to their budget, and then when their payments began to increase they could no longer afford their home.

•           Fixed rate mortgages.  Fixed rate mortgage account for the majority of home loans and are the safest and most reliable mortgage loans.  With a fixed rate loan your monthly mortgage payment never changes.  If your homeowner’s insurance and property taxes are included in your payment then the payment can only increase if these premiums or taxes increase, but the amount that goes towards your home itself will never change.  These loans allow people to see what they can really afford and understand that once they budget their mortgage payment into their monthly finances it will never change and this makes it easier to keep a home and avoid foreclosure.  This loan is definitely a good choice for people who are planning to purchase a home to live in for a long time.

•           Balloon mortgages.  These mortgages are becoming rare and are not good for the average homeowner.  This is when you make monthly payments for a set amount of time, like 8 years, and then at the end of that time the entire amount of the mortgage loan comes due in one large lump sum.  This is only good if you plan to sell the home before the date the balloon is due, or plan to refinance.  Otherwise, do not consider a balloon mortgage.  Also remember that things do not always go as planned, and even if you plan to sell the home, it may not sell and you should have a plan B just in case.

•           Hybrid mortgages.  A hybrid mortgage is the same as an adjustable mortgage, but has a longer fixed rate term.  Again, these loans are not good for people who plan to live in their homes for a long period of time.

•           Reverse mortgages.  For some senior citizens, reverse mortgages can be a lifesaver.  These mortgages are for people over the age of 62 who owe little to nothing on their home mortgage.  They can get a mortgage loan where they get a lump sum of cash, a monthly income, or a combination to spend on whatever they want.  They never have to make a payment and they can continue living in their home.  In return, the mortgage lender will add up all of the interest and the principal of the loan over the time you have the loan and once you die, they will take that amount out of the sale price of the home.  If you are considering a reverse mortgage, make sure you talk with your family first and consider all of your options before you make a decision.

•           Interest only mortgages.  These mortgages were also responsible for many foreclosures recently.  Interest only mortgages, like ARMs, give a teaser introductory interest rate for a set amount of time and then the interest rate rises and the monthly payments become unaffordable.  The difference is that while the homeowner is making payments during the introductory rate they are only paying the interest and not any principal on the amount of money they actually borrowed to purchase the home.  This means that when their teaser rate is over, they not only have to pay the increasing interest rate, but also the additional payment amount for the principal.  This type of mortgage payment can increase to three times the original payment amount.  This type of loan has forced a lot of families into foreclosure because they did not understand the terms of the loan they were getting.

Some of the reasons it is easier for a veteran to purchase a home through the VA Home Loan Guarantee Program include:

•           The VA guarantees the loan.  When a lender sees that a portion of the loan is guaranteed by the VA, they know they have a low risk investment.  Even if the veteran does not pay the loan, the lender will still get some of their loan money back and the property to sell.  This makes the loan more secure that traditional borrower’s loans and is one of the reasons why it makes it easier to qualify for applicants.

•           Their eligibility can be determined within minutes.  All a veteran needs to do is go into a VA approved lender and they can determine through the ACE system on the computer if the veteran is eligible to use the VA Home Loan Guarantee Program.

 •           The VA helps veterans who are in jeopardy of losing their homes.  Lenders feel more secure knowing that the VA is behind these borrowers because the VA will help find solutions to problems in the case a veteran has financial difficulties.  As a result of this, the borrower is less likely to default on their loan and the lender is more confident that they will be repaid by the terms of the mortgage contract.

•           If you are still active in the service, then your employment is easily verifiable.  One road block many people face is proof of income and employment. If you are an active service member then your income and employment are verified by the Federal Government.

 •           You are purchasing a home with no down payment, but it is treated as if you have a down payment.  Even if you have $0 down, the lender considers the VA guarantee to be similar to a down payment.  All a down payment does is ensures the lender that you are invested in the home purchase and will not walk away without paying back the loan.  It also allows them to have some equity in your home in the case they need to sell it so that they can make their money back.  With the VA guarantee the lender is already certain they will get their money back, so a down payment is not necessary.

If you are a veteran considering a near future home purchase, you should take advantage of the VA Home Loan Guarantee Program in order to have an easier time qualifying for a loan.  For more information on the VA Home Loan Guarantee Program go to www.va.gov

Under certain circumstances you do not have to pay the VA funding fee or can get a discount.  The VA Home Loan Guarantee Program is great for veterans who are in the market for a new home.  One of the most important questions is: how much do you have to pay to use this benefit?  Some people can get a discount, or even have the fee waived entirely depending on your circumstances.

To qualify for a discounted funding fee you must:

•           Be a reservist who is eligible for the VA Home Loan Guarantee Program.

•           Be currently active.  Reservists pay a higher funding fee that active members, and if you are currently active you may be eligible for a          discounted fee.

•           You must have served the full amount of time that you were called to active duty unless discharged due to a service related injury or disability.

•           You can begin using your benefits and discounts after 90 days of active service.

In order to qualify for having the entire funding fee waived you must:

•           Be an eligible veteran and be receiving payments or compensation from the VA due to a service related injury or disability.

•           Be an eligible veteran who would be receiving service related disability compensation if you were not retired and receiving retirement benefits.

•           Be considered or rated as eligible to receive service related disability compensation, even if the payments have not begun yet.

•           Be the spouse of a veteran who died from service related disabilities or in active service.

It is important to know that in order to have the funding fee waived or discounted your lender must take the proper steps.  Make sure your lender knows that you qualify for the fee waiver or discount so that they can verify your status and give proof of this status to the VA.  If you have paid a funding fee to the VA and feel that it was an error and you should have been exempt, then you should contact the VA and your lender.  A correction can be made that could get you some or all of the funding fee refunded to you.

For more information on the possible discount or exemption of VA funding fees for the VA Home Loan Guarantee Program go to http://www.warms.vba.va.gov/admin26/pamphlet/pam26_7/ch08.doc

•           To determine the value of a property you must have an appraisal which is required by the lender and the VA.  An appraisal is required when you are purchasing a home so that the lender is certain that the home is worth the amount of the loan.  Since you do not have a down payment you are borrowing the full value of the home.  This is only allowed by the lender because the VA guarantees a portion of the loan which is equal to a large down payment and is why you are not required to place your own down payment on the home at the time of purchase. 

•           An appraisal will estimate the fair market value of the home and the price should be based on this value.  The fair market value is determined by an appraiser by looking at the other homes in the same area that have recently sold that are similar to the home you want to purchase.  The homes are compared by square footage, attributes, bathrooms, bedrooms, property size, and other amenities, and then the sale prices are compared to determine about how much the home that is being appraised would sell for on the real estate market at that point in time.

•           If you have agreed to pay a higher price for the home that its appraised value you should consider re-negotiating the purchase price of the home.  Most sellers will accommodate a lower selling price rather than breaking the deal because the lender will not lend you more that the appraised value of the home.

•           If the seller is willing to let you walk away from the deal rather than allowing the sale price of the home to drop, then you do have other alternatives. Some sellers believe that they can get more that the appraised value for their home, or they may owe more that the appraised value for the home, and therefore can not sell the home for less. 

•           You can request a reconsideration of value for the appraisal of the home. To do this you have to notify the VA in writing to the office of jurisdiction.  This is whatever VA Home Loan Service Center is in control of the area in which you are in.  A re-appraisal may be done, or a reconsideration depending on information that you may give the VA on property amenities that the appraiser may not have been aware of, or new improvements or additions to the home. 

The best way to avoid potential problems with the no down payment option of purchasing a home through the VA Home Loan Guarantee Program is to try and inform the appraiser of all the features of the home in order to make sure that the appraisal value of the home meets or exceeds the anticipated purchase price.  It is the responsibility of the seller to inform the appraiser of the homes perks, amenities, and recent improvements, but as the buyer you should make sure that the seller understands that the lender will not allow you to borrow any amount over the appraised value which makes it in the seller’s best interests to keep the appraiser well informed in order to make sure the appraisal is successful and meets the needs of all parties involved.

For more information on the VA Home Loan Guarantee Program and how to purchase a home with no down payment go to http://www.homeloans.va.gov/lgyfaq.htm  

Even though the fees for a VA loan are comparable to other traditional lenders, some of the fees that are not allowed by the VA include:

• Application fees

• Pre-payment penalty fees

• Processing fees

• Escrow account fees

• Fees to attain lower interest rates

• Closing costs are comparable with other financing types (and may be lower).

There may be more fees that the VA does not allow. The rules of the VA Home Loan Guarantee Program change frequently. To get the most update information on the Va home Loan allowed fees for borrowers go to http://www.homeloans.va.gov/ or consult your VA approved lender.

•           You can re-use your VA loan benefit entitlement.  As long as you adhere to the VA guidelines and rules of entitlement, the VA allows you to use the home loan guarantee benefit as many times as you want.

•           You can not re-use your VA loan benefit entitlement if you allow someone to assume your mortgage.  Once your entitlement is tied into a specific mortgage loan, the entitlement stays with that loan until the balance of the mortgage is paid in full.  This means that you are unable to re-use your home loan benefit until the person or people who assumed your mortgage loan pay off the loan.

•           You are not able to re-use your VA loan benefit if your mortgage loan is foreclosed upon.  Once you have experienced a foreclosure with a mortgage loan that the VA has guaranteed, your entitlement is lost and you can not use the program again.

•           The VA will help you avoid foreclosure.  The VA understands that circumstances can arise that cause people to have difficult financial times.  Loss of employment, divorce, illness, and disability are just a few of the reasons why some veterans may have a problem paying their mortgage loan, and go into loan default.  Before foreclosure occurs, you should contact the VA.  They will help you communicate with your lender and find a solution to the problem in order to avoid foreclosure so that you may be able to keep your home and your entitlement in the VA Home Loan Guarantee Program.

•           The VA also has grant and loan programs for disabled veterans.  If you are having trouble paying your mortgage loan or are in default as a result of a disability, you may be entitled to additional benefits from the VA that will help you keep your home.

If you are a veteran who is considering using the VA Home Loan Guarantee Program you should thoroughly review the VA benefit and entitlement policies before proceeding.  The VA offers buyer counseling for veterans before using the program, and has housing specialists available in case there are any questions about the VA loan process.  A VA approved lender will also be able to give you valuable information about the VA Home Loan Guarantee Program.

For more information on the VA Home Loan Guarantee Program, entitlement, and guidelines go to http://www.homeloans.va.gov/veteran.htm