VA Loans and You

There’s not a lot to know about VA loans. Most of it for the home-buyer is very simple.

The first thing to know is the name is misleading. The VA does not make loans, even though you frequently may hear the phrase “VA Loan” as you did in the preceding paragraph. Instead of making a loan, the VA only guarantees a veteran will pay back the loan.

The VA loan process is very simple and this is a benefit. There’s nothing a veteran has to do with the VA. You don’t even need to contact them. Instead, the lender who you work with takes care of things for you.

There are other benefits of a VA loan, such as: (Ref: http://www.homeloans.va.gov/faqpreln.htm)

1. Equal opportunity.
2. No down payment (unless required by the lender or the purchase price is more than the reasonable value of the property).
3. Buyer informed of reasonable value.
4. Negotiable interest rate.
5. Ability to finance the VA funding fee (plus reduced funding fees with a down payment of at least 5% and exemption for veterans receiving VA compensation).
6. Closing costs are comparable with other financing types (and may be lower).
7. No mortgage insurance premiums.
8. An assumable mortgage.
9. Right to prepay without penalty.
10. For homes inspected by VA during construction, a warranty from builder and assistance from VA to obtain cooperation of builder.
11. VA assistance to veteran borrowers in default due to temporary financial difficulty.

This is a good list of the benefits. Of prime importance to you is the ability to get into a house without making a down payment. Civilians are often asked for a down payment of 5-20% of the selling price. That’s big money on a $150,000 house!

However, these benefits come at a price. The VA charges a "VA Funding Fee." This amount is typically 2.15% – 3.5% of the loan amount. The percentage may vary on four primary considerations. First, if this is the first time you’ve used your benefit, the funding fee will be 2.15%. Second, if it’s your second or subsequent use of the fee, your funding fee will be 3.5%. Third, as in all things in real estate, you can lower the funding fee by opting to make a down payment. Finally, if a veteran is receiving compensation from the VA, due for example from a service connected disability, then the funding fee is waived!

It’s important for you to know that if the funding fee is charged, you may pay it as an out of paid out-of-pocket expense. Or, you may pay the fee by simply adding it to the borrowed amount. A good lender will advise you about these options and discuss with you which option is likely your best option – the choice is yours, however.

Here’s a good link that tells you more about the VA Funding Fee:

www.homeloans.va.gov/docs/funding_fee_tables.doc

The following link explains several fundamental aspects of the process. However, please note that each state is a bit different in how it goes about selling real estate. For example, in contrast to step 5 at the bottom of the page at this link, the lender in Colorado does not select the closing company. Conversely, the Seller traditionally chooses who will close the real estate transaction. Usually, this is not a fee to the Buyer, but will cost the Seller about $200 or so.

http://www.homeloans.va.gov/lp.htm

The following link puts a lot of emphasis on you getting VA Form 26-1880 and it should. Your lender has to have the form to process your loan application. This form is very easy to get, but it may take some time (2-6 weeks, or so) to have it mailed to you. After I retired, it took me 3 months to get my 26-1880 the first time I used my VA benefits to buy a house.

This is an area where working with a good lender who understands VA loans can be helpful. Why? Because a good lender can now get the form for you over the internet through his system. This will save you time and hassles in general.

http://www.homeloans.va.gov/eligibility.htm

If you’d like to download the form to request your VA Form 26-1880 yourself, go to:

http://www.va.gov/vaforms/

The form is simple to understand and should be quite easy to prepare if you don’t want to have your lender take care of it online for you.

Here’s a link that will give you more good general information:

http://www.vba.va.gov/VBA/benefits/factsheets/homeloans/Homeloaneg_0906.doc

If you’d like, I can put you in touch with some local lenders who are familiar with the VA lending process. They’d be a good source for a loan and additional information on the VA loan process.

IN SUMMARY:

1. Working with a VA loan specialist is critical.
2. The VA loan process is very simple and there are several benefits to you.
3. You can buy a house and not have to pay any out-of-pocket expenses.
4. The VA charges a funding fee and the amount varies. You can pay for it out-of-pocket, or simply add the fee to the amount you borrow.
5. As a veteran, you’ll need a VA Form 26-1880 to submit for a VA loan. This blank form can be downloaded from the internet, or your lender can usually download It for you.

Please let me know if you have any questions about VA loans. As a veteran myself, I’m quite familiar with them . . .