Benefit Programs (continued) >>
Benefit
Programs (continued)
Home
Loan Guaranties
Eligibility
| Periods
of Eligibility | Guaranty
Amount | Required
Occupancy | Closing
Costs
Financing,
Interest Rates and Terms | Release
of Liability, Loan Assumption
Loans
for Native American Veterans | Repossessed
Homes | Safeguards
for Veterans
VA loan guaranties are
made to servicemembers, veterans, reservists and unmarried surviving
spouses for the purchase of homes, condominiums and manufactured
homes and for refinancing loans. VA guarantees part of the total
loan, permitting the purchaser to obtain a mortgage with a competitive
interest rate, even without a down payment if the lender agrees.
VA requires that a down payment be made for the purchase of a
manufactured home. VA also requires a down payment for a home
or condominium if the purchase price exceeds the reasonable value
of the property or the loan has a graduated payment feature. With
a VA guaranty, the lender is protected against loss up to the
amount of the guaranty if the borrower fails to repay the loan.
A VA loan guaranty
can be used to:
- buy a home;
- buy a residential condominium;
- build a home;
- repair, alter or improve a home;
- refinance an existing home loan;
- buy a manufactured home with or
without a lot;
- buy and improve a manufactured
home lot;
- install a solar heating or cooling
system or other weatherization improvements;
- purchase and improve a home simultaneously
with energy-efficient improvements;
- refinance an existing VA loan
to reduce the interest rate and make energy-efficient improvements;
- refinance a manufactured home
loan to acquire a lot.
Eligibility
Applicants must have a good credit
rating, have an income sufficient to support mortgage payments,
and agree to live in the property. To obtain a VA Certificate
of Eligibility, complete
VA Form 26-1880, Request for a Certificate of Eligibility for
VA Home Loan Benefits, and mail it to one of the two VA Eligibility
Centers (Winston-Salem and Los Angeles). In general, those veterans
living in the Western part of the country mail their applications
to the Los Angeles Eligibility Center, while those living in the
Eastern part of the country mail applications to Winston-Salem.
Additional information on eligibility and addresses for the Centers
is available on VA's loan guaranty eligibility page (http://www.homeloans.va.gov/elig.htm)
on the World Wide Web. Veterans may also have their lenders obtain
a Certificate of Eligibility for them through VA's ACE (Automated
Certificate of Eligibility) system. This is an online application
that, in some cases, can generate a certificate immediately. Not
all cases can be processed through this system but, if all necessary
information is available, ACE provides the quickest way to determine
eligibility.
Periods
of Eligibility
World War II: (1) active duty
service after Sept. 15, 1940, and prior to July 26, 1947; (2)
discharge under other than dishonorable conditions; and (3) at
least 90 days service unless discharged early for a service-connected
disability.
Post-World War II: (1) active
duty service after July 25, 1947, and prior to June 27, 1950;
(2) discharge under other than dishonorable conditions; and (3)
181 days continuous active duty unless discharged early for service-connected
disability.
Korean War: (1) active duty
after June 26, 1950, and prior to Feb. 1, 1955; (2) discharge
under other than dishonorable conditions; and (3) at least 90
days total service, unless discharged early for a service-connected
disability.
Post-Korean War: (1) active
duty between Jan. 31, 1955, and Aug. 5, 1964; (2) discharge under
conditions other than dishonorable; (3) 181 days continuous service,
unless discharged early for service-connected disability.
Vietnam: (1) Active duty
after Aug. 4, 1964, and prior to May 8, 1975; (2) discharge under
conditions other than dishonorable; and (3) 90 days total service,
unless discharged early for service-connected disability. For
veterans who served in the Republic of Vietnam, the beginning
date is Feb. 28, 1961.
Post-Vietnam: For veterans
whose enlisted service began before Sept. 8, 1980, or whose service
as an officer began before Oct. 17, 1981: (1) active duty for
181 continuous days, all of which occurred after May 7, 1975,
and discharge under conditions other than dishonorable; or (2)
early discharge for service-connected disability.
24
Month Rule: If service was between Sept. 8, 1980, (Oct.
16, 1981, for officers) and Aug. 1, 1990, veterans must generally
complete 24 months of continuous active duty or the full period
(at least 181 days) for which they were called or ordered to active
duty, and be discharged under conditions other than dishonorable.
Exceptions are allowed if the veteran completed at least 181 days
of active duty but was discharged earlier than 24 months for (1)
hardship, (2) the convenience of the government, (3) reduction-in-force,
(4) certain medical conditions, or (5) service-connected disability.
Gulf War: Veterans of the
Gulf War era, which began Aug. 2, 1990, and will continue until
Congress or the President declares it has ended, must generally
complete 24 months of continuous active duty or the full period
(at least 90 days) for which they were called or ordered to active
duty, and be discharged under conditions other than dishonorable.
Exceptions are allowed if the veteran completed at least 90 days
of active duty but was discharged earlier than 24 months for (1)
hardship, (2) the convenience of the government, (3) reduction-in-force,
(4) certain medical conditions, or (5) serviceconnected disability.
Reservists
and National Guard members are eligible if they were activated
after Aug. 1, 1990, served at least 90 days, and received an honorable
discharge.
Active Duty Personnel: Until
the Gulf War era is ended by law or Presidential Proclamation,
persons on active duty are eligible after serving on continuous
active duty for 90 days.
Members of the Selected Reserve:
Individuals are eligible if they have completed at least six
years in the reserves or National Guard or were discharged because
of a service-connected disability. This eligibility expires Sept.
30, 2009. Reservists who do not qualify for VA housing loan benefits
may be eligible for loans on favorable terms insured by the Federal
Housing Administration (FHA) of the Department of Housing and
Urban Development (HUD).
Others: Other eligible individuals
include unmarried spouses of veterans or reservists who died on
active duty or as a result of service-connected causes; spouses
of active-duty servicemembers who have been missing in action
or a prisoner of war for at least 90 days; U.S. citizens who served
in the armed forces of a U.S. ally in World War II; and members
of organizations with recognized contributions to the U.S. World
War II effort. Eligibility may be determined at the VA Eligibility
Centers.
Guaranty
Amount
The guaranty amount is the amount
of the VA guaranty available to an eligible veteran and may be
considered the equivalent of a down payment by lenders. The basic
VA guaranty amount is $36,000, but up to $60,000 in entitlement
may be available to veterans purchasing or constructing homes,
to be financed with a loan of more than $144,000, and to veterans
who obtain an Interest Rate Reduction Refinancing Loan of more
than $144,000. The amount of entitlement varies with the loan
amount. Loan guaranty limits are listed in the
"Tables" section of this booklet.
VA does not establish a maximum loan
amount. However, no loan for the acquisition of a home may exceed
the reasonable value of the property, which is based on an appraiser's
estimate. A buyer, seller, real estate agent or lender can request
a VA appraisal by completing
VA Form 26-1805, Request for Determination of Reasonable Value.
The requester pays for the appraisal, often called a "VA appraisal,"
according to a fee schedule approved by VA. This VA appraisal
estimates the value of the property, but is not an inspection
and does not guarantee that the house is free of defects. VA guarantees
the loan, not the condition of the property.
A loan for the purpose of refinancing
existing mortgage loans or other liens secured on a dwelling is
generally limited to 90 percent of the appraised value of the
dwelling. A loan to reduce the interest rate on an existing VA-guaranteed
loan, however, can be made for an amount equal to the outstanding
balance on the old loan plus closing costs, up to two discount
points, and energy- efficient improvements. A loan for the purchase
of a manufactured home or lot is limited to 95 percent of the
amount that would be subject to finance charges. The VA funding
fee and up to $6,000 in energy-efficient improvements also may
be included in the loan.
A veteran who previously obtained
a VA loan can use the remaining entitlement for a second purchase.
The amount of remaining entitlement is the difference between
$36,000 ($60,000 for certain loans, as described above) and the
amount of entitlement used on prior loans. Remaining entitlement
is not necessary for veterans to refinance an existing VA loan
with a new one at a lower interest rate.
Required
Occupancy
Veterans must certify that they intend
to live in the home they are buying or building with a VA guaranty.
A veteran who wishes to refinance or improve a home with a VA
guaranty also must certify to being in occupancy at the time of
application. A spouse may certify occupancy if the buyer is on
active duty. In refinancing a VA-guaranteed loan solely to reduce
the interest rate, veterans need only certify to prior occupancy.
Closing
Costs
Payment in cash is required on all
home loan closing costs, including title search and recording,
hazard insurance premiums, prepaid taxes and a one percent origination
fee, which may be required by lenders in lieu of certain other
costs. In the case of refinancing loans, all such costs may be
included in the loan, as long as the total loan does not exceed
90 percent of the reasonable value of the property. Interest Rate
Reduction Refinancing Loans may include closing costs and a maximum
of two discount points.
Loans, including refinancing loans,
are charged a funding fee by VA, except for loans made to disabled
veterans and unmarried surviving spouses of veterans who died
as a result of service. The VA funding fee is based on the loan
amount and, at the discretion of the veteran and the lender, may
be included in the loan. Funding fee rates are listed in the
"Tables" section of this booklet.
Financing,
Interest Rates and Terms
Veterans obtain VA-guaranteed loans through the usual lending institutions, including banks, savings and loan associations, building and loan associations, and mortgage loan companies. Veterans may obtain a loan with a fixed interest rate, which may be negotiated with the lender. Veterans also may obtain a hybrid Adjustable Rate Mortgage where the initial interest rate remains fixed for at least three years. After three years the rate cannot be adjusted upward any more than one percent annually and five percent over the life of the loan. If the lender charges discount points on the loan, the veteran may negotiate with the seller as to who will pay points or if they will be split between buyer and seller. Points paid by the veteran may not be included in the loan, except that a maximum of two points may be included in Interest Rate Reduction Refinancing Loans. The loan may be for as long as 30 years and 32 days.
VA does not require that a down payment
be made, except in the following instances: (1) a manufactured
home or lot loan; (2) a loan with graduated payment features;
and (3) to prevent the amount of a loan from exceeding VA's determination
of the property's reasonable value. If the sale price exceeds
the reasonable value, the veteran must certify that the difference
is being paid in cash without supplementary borrowing. A cash
down payment of five percent of the purchase price is required
for manufactured home or lot loans.
Release
of Liability, Loan Assumption
When a veteran sells a home financed
through a VA guaranty to a purchaser who assumes the loan, the
veteran may request release from liability to the federal government
provided the loan is current, the purchaser has been obligated
by contract to purchase the property and assume all of the veteran's
liabilities, and VA is satisfied that the purchaser is a good
risk. A release of liability does not mean that a veteran's guaranty
entitlement is restored. If the new veteran-buyer agrees to substitute
entitlement for that of the veteran-seller, entitlement may be
restored to the veteran-seller.
A VA loan for which a commitment was made on or after March 1, 1988, is not assumable without approval of VA or its authorized agent. The person who assumes a VA loan for which a commitment was made on or after March 1, 1988, must pay a fee to VA. If a person disposes of the property securing a VA-guaranteed loan for which a commitment was made after March 1, 1988, without first notifying the holder of the loan, the holder may demand immediate and full payment of the loan. Veterans whose loans were closed after Dec. 31, 1989, have no liability to the government following a foreclosure, except in cases involving fraud, misrepresentation or bad faith.
Loans
for Native American Veterans
VA direct home loans are available
to eligible Native American veterans who wish to purchase, construct
or improve a home on Native American trust land. These loans may
be used to simultaneously purchase and improve a home. Direct
loans also are available to reduce the interest rate on existing
loans obtained under this program. VA direct loans may be limited
to the cost of the home or $80,000, whichever is less. A funding
fee must be paid to VA. The fee is 1.25 percent for loans to purchase,
construct or improve a home. For loans to refinance an existing
loan, the fee is 0.5 percent of the loan amount. Veterans receiving
compensation for service-connected disability are not required
to pay the funding fee. The funding fee may be paid in cash or
included in the loan. The following may not be included in the
loan: VA appraisal, credit report, loan processing fee, title
search, title insurance, recording fees, transfer taxes, survey
charges or hazard insurance.
Repossessed
Homes
VA acquires properties as a result of foreclosures on VA guaranteed loans. These properties are marketed through a property management services contract with Ocwen Federal Bank, FSB, and listed by local agents through the Multi-Listings System. A listing of properties for sale may be obtained from Ocwen's Internet Web page (http://www.ocwen.com). Contact a real estate agent for information on purchasing a VA acquired property.
Safeguards
for Veterans
The following home loan guarantee
safeguards have been established to protect veterans:
- Homes completed less than a year
before purchase with VA financing and inspected during construction
by either VA or HUD must meet VA requirements.
- VA may suspend from the loan
program those who take unfair advantage of veteran borrowers
or decline to sell a new home or make a loan because of race,
color, religion, sex, disability, family status or national
origin.
- The builder of a new home is required
to give the purchasing veteran a one-year warranty that the
home has been constructed to VA-approved plans and specifications.
A similar warranty must be given for new manufactured homes.
- In cases of new construction completed
under VA or HUD inspection, VA may pay or otherwise compensate
a veteran borrower for correction of structural defects seriously
affecting livability if assistance is requested within four
years of a home-loan guaranty.
- The borrower obtaining a loan
may only be charged the fees and other charges prescribed by
VA as allowable.
- The borrower can prepay without
penalty the entire loan or any part not less than the amount
of one installment or $100.
- VA encourages holders to extend
forbearance if a borrower becomes temporarily unable to meet
the terms of the loan.
Benefit Programs (continued) >>
Table of Contents |
Get the Savvy Consumer Newsletter! (FREE)
