The VA loan program is created to honor the sacrifices of our dear soldiers. VA loans are as straightforward as they can get so Veterans and Servicemembers achieve homeownership without the complexities of traditional financing.
As a new year begins, it’s a good time to get to know VA loans better, the characteristics that make them the loan program for Veterans.
Breaking Down VA Loans
Despite millions utilizing VA benefits, there are still a number of eligible military personnel who have yet to take advantage of VA loans, for instance.
VA-guaranteed loan programs serve a number of purpose from purchasing or constructing a home to refinancing existing loans in a streamlined way.
ABCs of a VA Loan
That being said, let’s go into the building blocks of a VA-guaranteed loan. This doubles as your crash course on VA rules and guidelines.
Amount of Guaranty
The essence of VA loans is the guaranty that VA gives to lenders. If a borrower defaults on his or her loan, VA will reimburse the lender a portion or all of the loss arising from the default.
VA only guarantees a portion of a VA loan but this makes it possible for you to borrow without down payment. In calculating this guaranty, VA uses conforming loan limits on one-unit properties.
VA does not set minimum credit score standards. BUT, it does require satisfactory credit.
Borrowers must also demonstrate satisfactory repayment ability through income and debt-to-income ratio up to 41%.
You pay closing costs on purchase and refinance loans. But VA puts limits on closing costs. With this, borrowers take out loans with lower closing costs and avoid unnecessary fees.
VA allowable fees include: funding fee (as discussed below), origination fee of up to 1%, reasonable discount points, appraisal, and credit report. Sellers are permitted to pay a certain percentage of the closing costs while certain refinance loans allow closing costs to be financed.
The true $0 down payment loan program: VA loans don’t require down payments.
Rare cases that a down payment is required are (i) the home’s purchase price exceeds its reasonable value, (ii) the loan is GPM or Graduated Payment Mortgage, or (iii) the lender requires down payment to meet secondary market requirements.
In every VA transaction, a borrower will pay a one-time, upfront fee that can be financed into the loan. This funding fee keeps the VA loan program going, allowing more Veterans to benefit.
Funding fees vary depending on the type of transaction and may be waived for Veterans with service-connected disability.
Maximum Loan Amount
VA loans don’t have maximum loan limits but the VA guaranty has and it is 25% of (i) the conforming loan limit or (i) the amount you want to borrow, whichever is lower.
The maximum loan amount is based on the value of the property and the lender’s requirements in the secondary market.
VA loans are for owner-occupied homes. The borrower has to certify his or her intent to occupy the home or in the case of IRRRL, that he or she has previously occupied the home.
This is VA’s flagship refinance program, also known as Streamline Refinance. Through IRRRL, existing VA borrowers obtain lower rates without appraisal or credit underwriting.
IRRRLs allow closing costs to be financed including reasonable discount points of up to two. No cash-out is allowed.
How well do you know your VA loan program? Speak with a lender today.