What about a VA loan?

I can tell you that there is more buzz about VA and FHA loans in San Diego than ever before.  My heavens, I was in a sales meeting today in Rancho Santa Fe, and they are even talking about them.  So what is a VA loan, and what are some of the advantages if you are eligible?  

Of course if you are not a Veteran, then stay tuned as I will soon post an FHA article.

Several months ago, I was privileged to attend a VA Home Loan workshop hosted by Military Home Programs, Inc.  in San Diego.  I thought that I would pass on some of the interesting facts regarding the VA loan, and I would encourage you to contact them for more information or help with specific questions.

Back in 1944 President Franklin Roosevelt signed the “Serviceman’s Readjustment Act of 1944″  which passed unanimously by the 78th Congress.  This was most commonly known as “The GI Bill of Rights”, which offered home loan and education benefits to Veterans.  In essence, the VA Home Loan Program was created to say “Thank You” to the Armed Forces men and women who have served their County.

A VA-Guaranteed loan is financed by a lender, such as a mortgage company, savings and loan, or bank.  VA’s guarantee on the loan protects the lender against loss if the payments are not made, therefore encouraging lenders to offer veterans loans with more favorable terms.

Back in the 1990′s VA Loans got a bad name because they were taking 60 to 90 days to close, had unreasonable appraisers demanding silly repairs or bringing in the value low, and has a maximum loan amount fixed at $240,000 until 2005.

Here are some of the modern benefits of a VA loan today:

• 1 Loan (Fixed and ARM options)
• Zero Down
• No Mortgage Insurance (PMI)
• No Pre-payment penalties
• Great refinance options if the rates go down with no appraisal required
• Lower rates
• Liberal income and credit guidelines
• Reusable – but only one at a time
• Funding fee can be financed
• Minimal closing cost to the Buyer
• Personal financial counseling to help Veterans during time of financial difficulty
• The loan is assumable to credit worthy buyers

The VA loan must be used for owner occupied properties; it cannot be used for investment properties or 2nd home.

The VA loan is not driven by a FICO score like conventional loans.  As a general rule your score cannot be less than 580 and should be 630+.  The VA uses the residual income technique, not debt to income.  The VA guidebook references 41% debt to income, but this is not the driving factor.  Another large advantage of the VA is no reserves (cash) is required unlike conventional and FHA.

People eligible for a VA loan are basically just about anyone that did military time – Active Duty, Reserves, Retirees, and Veterans.  This eligibility does not expire and in some cases, widows may even utilize the eligibility of their spouses.

In order to sustain the VA Home Loan Guarantee Program, the Department of Veterans Affairs collects a funding fee for each transaction (loan).  For example, if you are regular military with a 0 down payment the funding fee would be 2.15% for first time use.  With a down payment of 5 to 9% the funding fee would be 1.5% for first time use, and for 10% or more down payment the funding fee would be 1.25% for first time use.

Most buyers are 1st time users with zero down payments and have active duty time, so the funding fee is typically 2.15%.  If you’re collecting any VA disability pay, you’re fully exempt from that funding fee.  Which means you get all the benefits of the VA without any extra fees.

The Veteran can, but is not required to pay the following fees:

• 1% loan origination fee
• Discount Points (Buy rate down)
• Appraisal
• Credit Report
• Prepaid items 
• VA Funding Fee
• Title Insurance Policy
• Recording Fees

All other fees cannot be paid by the Veteran and include:

• Escrow Fee – typically 1/2 buyer and 1/2 seller in Southern California
• Notary Fee
• Document Preparation Fees
• Tax Service Fees
• Underwriting Fee
• All Other Miscellaneous Fees

For the VA non-allowed fees, the Seller or Lender can pay all these costs.

VA Eligible Properties would include:

• Any single family residence that is re-sale.
• New single family residence for which the Builder has been VA Approved.

For resale condominiums the complex must have VA approval.  The VA requires that a condominium complex be VA approved before they will guarantee a VA loan.  Many properties in San Diego are already approved and on the VA list.  Finding out if the property is approved is a complex process and your VA lender can confirm.  

For 2009 the maximum VA with zero down is $593,750.  Also there is a VA Jumbo loan available for those Rancho Santa Fe buyers at rates much better than conventional jumbo financing. 

My suggestion is give Ken Bates a call over at Military Home Programs, Inc. and mention that you read about him on San Diego Lifestyle and want to get started on your VA loan.  His office number is 619-422-5900 and there website is www.MilitaryHomePrograms.com.