Understanding the VA Mortgage
Unlike in years past, when it comes to financing your new home there are only four mortgage options (with a few variations of these products) available to homebuyers. These are FHA or Federal Housing Authority loans, Conventional or FANNIE MAE Conforming loans, RD or USDA Rural Development loans and VA or Veteran Administration loans.
Understanding and striving to meet the “ever changing” criteria for these loan programs is important to achieving a successful home purchase. This is just one of the many reasons why it’s essential that the Realtor you choose to help facilitate your home purchase have at least a general understanding of the requirements of these loan programs. However, speaking directly with a VA Certified Direct Mortgage Lender who is well versed in the underwriting process and guidelines of each of these programs will be essential.
Smart Move Real Estate agents (Smart Agents) are highly trained in the criteria and processes of each of these loan programs.
VA LOAN: These loans are typically made by a bank or VA Certified Direct Mortgage Lender. A borrower can choose to go through a “middle man” called a mortgage broker, however, they will typically pay higher rates and fees by doing this. VA loans are not typically provided by the Veterans Administration itself. The VA simply “insures” the lender providing you with the loan against loss in the event of a default.
As of the writing of this article, the current basic criteria for a VA loan are:
- The maximum Veteran Administration (VA ) 100% loan amount for a single family residence in the State of Louisiana is currently $484,350.
- A homebuyer may purchase a higher priced home by providing the lender a 3.5% down payment on the amount that exceeds the $484,350 maximum loan amount. For example:A qualified veteran purchasing a $584,350 home would pay 3.5% on the $100,000 that exceeds the maximum loan. In this scenario the buyer would pay only a $3,500 down payment to purchase a $553,100 home.
- A larger down payment may also be used to reduce the required VA Funding Fee.
Purchasing a multi-unit property is an excellent way for a homeowner to defer or even eliminate their mortgage payment. The purchaser may do this by living in one unit and renting out the remaining units. The maximum number of units to be considered as a residential property is four or otherwise known as a four-plex. Loan limits for multiple unit properties which can be financed through a Veterans Administration insured loan in the State of Louisiana are as follows:
- Single Family Residence – Maximum 100% Financeable Loan = $484,350
- Two Unit or Duplex – Maximum 100% Financeable Loan = $620,200
- Three Unit or Tri-plex – Maximum 100% Financeable Loan = $749,650
- Four Unit or Four-plex – Maximum 100% Financeable Loan = $931,600
The homeowner must intend to reside in one of the units for a minimum of 2 years. Loan limits may be different in other states where the cost of living may be higher.
As a rule, all active duty and honorably discharged veterans are eligible for a VA Home Loan. The homebuyer must have suitable credit (VA loans allow for more flexibility with credit than conventional loans.), suitable income for the loan amount, and have obtained a valid Certificate of Eligibility (COE) from the Veterans Administration. SPOUSES of a veteran may also qualify if they meet one of the following conditions:
- Non-remarried spouse of a Veteran who died while in service or from a service connected disability., or
- Spouse of a Service member missing in action or a prisoner of war., or
- Surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003., or
- Surviving Spouses of certain totally disabled veterans whose disability may not have been the cause of death.
NO DOWN PAYMENT IS REQUIRED! A qualified veteran may purchase a home with a 100% financing mortgage. Though no down payment is required, the veteran may still need monies set aside for closing costs, insurance, tax proration’s and escrow accounts. On certain occasions, these funds may be a gift from a family member. However, you will need to talk to a Certified VA Loan Officer to determine if your unique situation will allow for this. If you can’t get gift funds and don’t have the money in savings, on many occasions your Smart Agent can negotiate to have the seller pay some, or all, of these expenses on your behalf.
The minimum credit score most of the direct lenders we refer to will be able to provide you an VA loan is currently 600. If you have had some credit issues in the past, many times your Certified VA Loan Officer can help you remedy some of these and get your score high enough to allow you to use a VA Loan to purchase your new home.
VA borrowers must have a good 12 month rental or mortgage history to qualify. Remember, you’re buying a house. The lender and VA are primarily concerned with how you pay your housing expense! If you currently rent from a property management company the lender will simply have to get a Verification of Rent (VOR) from the property management company. However, if you rent from an individual, you are most likely going to be REQUIRED to produce the last twelve months of cancelled checks to prove you paid your rent on time. On occasion, there can be exceptions for this requirement. You will need to discuss this with your Certified VA Loan Officer.
- What about old charged off accounts and medical bills? DON’T DO ANYTHING WITH THEM! Many times a homebuyer will try to “fix” their own credit calling old accounts seeking to settle them. This very move can keep you from purchasing your home! Old accounts no longer impact your credit score. Contacting these companies in an attempt to settle them actually re-actives the account. THIS WILL PLUMMET YOUR CREDIT SCORE! If you have derogatory entries on your credit bureau, let your Certified VA Loan Officer direct you how, and which ones, to fix.
- VA Funding Fee & Mortgage Insurance: As mentioned earlier, the VA does not write most of their loans. They only insure the lender against loss. Thus being the case, VA charges a 2.15% Funding Fee for first time users of a 100% loan eligibility. Second time users of the 100% benefit are charge a 3.3% Funding Fee. If the veteran puts 5 to 10% down on the house the Funding Fee can drop to 1.5%. Down payments of 10% or more can drop the Funding Fee to as low as 1.25%. Regardless of the amount of the Funding Fee, it is typically added on top of the principle mortgage amount. One of the advantages of a VA mortgage is there is NO MORTGAGE INSURANCE PREMIUM. With other types of loans that exceed an 80% Loan to Value (the buyer is not providing a 20% cash down payment) a monthly Mortgage Insurance premium will be charged to the borrower. The VA Loan has only the Funding Fee.
FOR MORE INFORMATION ON VA MORTGAGES CONTACT A ONE OF OUR SMART AGENTS WHO CAN PUT YOU IN CONTACT WITH THE BEST VA LOAN DIRECT LENDER.
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Derek was always ready to meet me and show homes when it was convenient to me. When he understood what was most important to me in a home, he would diligently research new listings and send them to me. He worked for me a few months prior to my move from Colorado, never forgetting to keep me informed.
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