A Little Known Fact...

Did you know that 66% of the U.S. population are veterans, and nearly 40% of them have never used their entitlement to buy a home using 100% financing?

What is a Veteran

A veteran is a person who has completed service in the US military, on active duty, as a reservist, or in the National Guard. Depending on the length of service (which must have been terminated with an honorable discharge) the veteran may be eligible for a VA loan for the purchase of a primary residence.

What is a VA (Veterans Administration) Loan

A VA mortgage loan is made by an institutional lender, not the VA. The VA only guarantees the loan to the lender for an eligible veteran, who may borrow up to 100% of the purchase price of a home, which must be used as the veteran's owner occupied, principal residence.

Because making a small down payment is a great risk to the lender, the VA charges a funding fee which is equivalent to PMI (private mortgage insurance) on a conventional loan. The smaller the down payment, the larger the funding fee. However, veterans can finance their funding fee in their loan, yet in no event can the total loan exceed the prevailing maximum amount authorized by the VA.

The Veterans Benefit Act currently provides veterans with a maximum eligibility of $104,250. This eligibility figure is multiplied by 4 by mortgage lenders to arrive at the current maximum permissible VA loan amount of $417,000.

Even though a veteran may have eligibility for a VA loan, this does not guarantee that a loan will be approved. It will still be necessary for the veteran to meet the basic qualifying criteria established by the VA.

Characteristics and Benefits of a VA Loan

• VA loans are for the veteran and spouse, not veteran and significant other, unless the significant other is also a veteran.
• Qualified veterans may purchase a single family home or a 2-4 unit residential property. However, they must occupy one unit as their principal residence.
• Veterans are able to qualify for 100% loans up to the current limit of $417,000.
• No down payment is required although purchasers frequently do so.
• VA rules also permit the seller to pay all "costs to close" and up to 4% in sales concessions. This will, of course, be subject to negotiation.
• There are no pre-payment penalties with VA loans.
• Veterans can choose their interest rate and may pay points to reduce the rate.
• A VA loan is assumable, even to a non-veteran, at the same rate but the assumptor must qualify and pay the equity to the veteran.
• A veteran borrower can get a written release of liability when someone assumes their loan.
• Veterans with a 10% service connected disability are exempt from the funding fee.

Common Misconceptions about VA Loans

A number of veterans think their eligibility expires if it is not used. This is untrue. Veterans meeting the basic eligibility requirements prescribed by the VA do not lose their eligibility as long as they live. Further, un-remarried spouses of veterans who died in the line of duty or from service connected reasons are also eligible for the benefits obtained through the service of their spouse. Spouses of veterans who are missing in action or held prisoner of war also remain eligible.

Some veterans believe the entitlement can be used only once. Again, this is untrue. The entitlement can be used over and over again.

When, for example, a veteran looks at his or her certificate of eligibility and sees that the eligibility amount is only $36,000, they immediately think, "There is no house priced at $36,000 that I would live in, SO WHY BOTHER?" What they completely may not realize is that the $36,000 figure is what applied at the date the veteran left the military. Since then, the VA has increased the eligibility amount to its present level of $104,250 which, when multiplied by a factor of 4 by the lender, means that the maximum permissible loan amount is $417,000.

Next Step

If you are a veteran and would like to know more about using a VA loan for your home purchase, simply let us know and we will put you in touch with a loan officer who will, at no obligation, help you to understand more fully whether or not this form of financing is a good option for you.

* Acknowledgment

Much of the foregoing material is sourced from Paul M. Marek of the Beacon Financial Group with Suntree.