9 July 2008
Home Financing the American Way. What Exactly is a VA Loan?
Posted by VA Loan Pro under: VA loans .
A VA loan is a type of mortgage loan guaranteed by the government in the case of default. VA loans are administered by the Department of Veterans’ Affairs, and part of the original GI Bill of rights signed into law in 1944. As confusing at that sounds, the loan itself it very easy and offers eligible veterans specialized home financing created just for them.
As attractive a loan program VA financing is, it is estimated only 18% of all veterans actually use the benefit available. As other types of mortgage lending programs evolved over the past decade, veterans were offered financing considered “faster” or “less complicated” than VA. Whereas other programs might have seemed more streamlined and less restrictive, the VA loan program is designed to protect the veteran. Any specific guidelines attached are to insure veterans are given benefits the program was originally designed for.
While VA loans are designed for eligible veterans, and in some case spouses of veterans, it offers the ability for 100% financing, meaning zero down payment. In addition, the interest rates offered are at least current market rates, and sometimes below. The program also allows a higher ratio (gross income times proposed house payment plus debts) than other type lending programs. It also allows the seller or lender to pay a portion of closing costs associated with the loan and requires no mortgage insurance. VA loans are also the only loan program that restricts what a borrower can pay in the form of costs. The benefit of this is less cash required at closing, and can often times mean no cash when you close.
While the Department of Veterans’ Affairs regulates VA lending, they delegate the process to approved lenders and banks referred to as “automatic”. A fully approved lender will also have what is called a LAPP designation. This is important when selecting the lender, as those without the actual designation are required to submit the VA loan to a company that does. It is important to understand VA only reviews a loan for credit determination under specific circumstances pertaining to delinquent refinance transactions and also requires a designated lender to submit it for review. If a loan is not approved by the lender, VA does not override that decision.
There are two main requirements in obtaining a VA loan, eligibility and primary residence. In the case of purchasing a home using VA financing, it is required the home be a veteran’s primary residence. In some cases, if a veteran is deployed overseas, home purchase may still be an option, provided it is for the use of their spouse and the veteran signs a form stating they intend to occupy it upon return.
The veteran must also have eligibility to purchase a home. As determined by the VA, eligibility varies depending on when, how and the length of service performed. Veterans that served or are currently on active duty differ from reservist and national guards that have never been called to duty. Another factor for eligibility is determined by the year in which a veteran enlisted. Eligibility includes veterans that received an honorable discharge and served on active duty from 90 days to two years, depending on when they served.
VA loan financing is a benefit bestowed to honor those that served, and continue to serve, our country and should have special guidelines just for them. For more information on purchase or refinancing your dream, contact an approved VA lender to get you started on a VA financing program.
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9 July 2008 at 2:14 pm.
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