Applying for a VA Loan

 

Program Basics

America’s men and women who have served their country may be eligible to use the VA Loan program in order to make life a little easier. VA loans provide many options for helping veterans purchase, improve, or refinance their primary residence.

Purpose

A VA Loan can be made to purchase single-family dwellings, condos, or cooperative units. It can also be used for certain live-and-rent buildings, as long as they don’t contain more than four family units and one business unit. The VA loan may also be written for a farmhouse and its land (at residential value only), as long as the home will be the veteran’s primary residence.
If the VA loan is to be used for new construction, the residence may be built on land already owned or simultaneously purchased.
Veterans may also be eligible to refinance existing VA loans in order to obtain a better interest rate through Interest Rate Reduction Refinancing Loans (IRRRLs). Refinancing is also available for other types of loans which are secured by a lien on the residence.
The VA loan program is flexible with loans for home renovation as well. Expenses for home renovations or energy efficiency improvements may be financed with the purchase of a new home, included in a refinance of the veteran’s current home loan, or written as an independent loan.
The VA loan is not meant for investors, developers, multi-family buildings, vacation homes, commercial use, or land purchase alone. It was created to help America’s veterans secure affordable housing of their own as part of our thanks for their service.

Financial Overview

The VA loan has no fixed loan amount or interest rate requirements. Veterans have the opportunity to work with approved lenders regarding the lowest interest rates and closing costs possible. Points may be financed with home refinancing loans, but not with home purchase loans. Loan amounts will generally depend on the lender’s assessment of property values. The maximum loan term is 30 years.
Another attractive feature of the VA loan is that, in most cases, no down payment is required. The only loans which require a down payment are those in which the home being purchased or refinanced has a loan amount which is greater than the value of the home.

The VA loan program does require that the veteran or their spouse must occupy home unless on active duty or their home is undergoing substantial renovations. Veterans must also meet creditworthiness tests, including the projected ability to repay the loan and a debt-to-income ratio of usually 40 percent or lower.
A one-time funding fee, which is a set percentage of the loan amount, will be assessed for each loan and may be financed. The percentage will depend on each veteran’s financial circumstances.

Guaranty

Of course, if all VA regulations have been followed by both the lender and the veteran, the VA will reimburse the lender for part of the loan in case of loss from foreclosure. The guaranty also reduces the amount of the veteran’s financial responsibility in a default judgment.
The guaranty on a VA loan is determined by the amount of the original loan and the location of the property. Maximum guaranty percentages range from 25 to 50 percent, with the larger guaranty reserved for the smaller loans.