VA Loan 

In 1944, U.S. Congress passed the servicemen's readjustment act to provide returning world war II veterans with education, medical, and home loan benefits to help them readjust to civilian life.  This law is often referred to as the G.I.BILL.  The original act has been amended many times over the years.  Veterans benefits are managed by the US Department of Veterans Affairs (VA).  One very important benefit is the VA home loan guaranty.  This guaranty is extended to eligible veterans to assist them in the purchase of owner occupied residential property of up to four units.  The G.I.BILL is the legislation that provides for VA loan guaranties.

VA loan guaranty characteristics. 

The VA program has a number of features that are attractive to borrowers who qualify:

1.  A VA loan may not have prepayment penalties.

2.  A VA loan may be as seen by anyone, the new buyer does not have to be a veteran.

3.  No mortgage insurance is required.

4.  Funding these may be financed.

5.  Builder warranty is required on new homes.

6.  Closing cost may be paid by seller.

While no mortgage insurance is required, the VA charges a funding fee set at 2% on non-down payment loans.  For second time users with eligibility, the fee is 3%.  With a down payment of 5%, the fee for both first and second time users is 1.5%.  For a 10% down payment, the fee drops to 1.25%.  The fee may be finance in the loan.

Closing costs are not permitted to be finance in the loan.

However, the VA sets maximum fees for these items.  These fees are changed from time to time by the VA.  Current closing cost items include:

1.  A maximum 1% origination fee.

2.  Appraisal fee are set by regional VA offices.

3.  Credit report fee may not exceed the costs charged to the lender.

4.  The fact that many paid for hazard and flood insurance, if required.

5.  The veteran may pay for title insurance.

6.  The veteran must pay for a funding fee.

7.  The veteran may pay for recording fees.

8.  The term is responsible for paraded interest and property taxes.

Sale by assumption. 

Veterans who obtain loans guaranteed by the VA are legally obligated to indemnify (pay back) the United States Government for any claim paid out by the VA under the loan guaranty.

This is the case for the life of the loan, regardless of whether the property has been sold, foreclosed, or transferred to another.  It is important that the return of sales or transfers a home, where they beat a loan will not be paid off in full, be made aware of this fact.  A veteran may be released from liability on that loan only if the following three conditions are met:

1.  The loan must be current

2.  The purchaser must be an acceptable credit risk

3.  The purchaser must assume the obligations and liabilities of the veteran on the loan including the indemnity obligation.  The indemnity obligation means that the veteran must reimburse the US government for any loss on the loan.  The assumption of the obligations must be evidenced by a written agreement as specified by the VA.

To facilitate and returns a release from liability on a loan a new buyer intends to sue them, it is best to include in the sales contract a provision to that effect.  The sales agreement should provide that the buyer will assume all the sellers loan obligations, including the liability for indemnity on the VA loan, and that the sale will not be closed unless and until the VA approves the credit and income of the purchaser.  The seller must apply to the VA for a formal release of liability.

If the sale closes without first obtaining the release from the VA, the veteran to find that he or she is fully liable in the case of a default.

Restoration of entitlement. 

A veteran who has paid off his or her loan, and sold the house on which the loan was secured, may have all his or her entitlement restored.  Entitlement is the maximum insurance amount that the VA will provide for the veterans home loan.  By an act of Congress, the veteran is entitled to the amount by virtue of his or her service in the Armed Forces.  To restore entitlement, the veteran must apply to the VA and fill out the necessary forms.

Eligibility.

Eligibility requirements for a VA loan vary depending on the when and where a veteran served and the length of the service.  In general, the periods for active wartime service are:

WWII                          09/16/40  -  07/25/47

Korean Conflict            06/27/50  -  01/31/55

Vietnam Era                 08/05/64  -  05/07/75

The defendant must have had a minimum of 90 days of active service and have been discharged under conditions other than dishonorable.

Persian Gulf War            08/02/90 – TBD

Gulf War veterans must have completed 24 months of active duty or the full period , at least 90 days, for which they were called up to active war duty.  At the turn almost discharged for service connected disability, for hardship, or at the convenience of the government, is also eligible.

Peacetime the terms are also eligible for the periods:

                        07/26/47   -   06/26/50

                        02/01/55   -   08/04/64

                        05/08/75   -   09/07/80

Veterans must have had at least hundred 81 days of continuous active duty and a discharge under other than dishonorable conditions.  Peacetime veterans after 09/07/80 – 08/01/90 must have had 24 months of active duty service and similar discharge requirements.  Current active-duty personnel are eligible after 181 days of continuous service.  Selected reserves and National Guard are eligible after six years of service and having attended the two-week active-duty for training, or if they have been honorably discharged, retired, or transferred to standby reserve or ready reserve.  They may be eligible before six years for his service connected disability.  Eligibility for Selected Reservists expires on  09/30/2007.

VA loan guarantee amounts. 

The VA does not guarantee the entire amount of a loan.  What is guaranteed is the top portion off a loan.  This is the area where lender is most at risk in the event of a default.  The maximal enticement amount has been adjusted several times by Congress.
 

Partial entitlement. 

A veteran of used his entitlement to purchase a home in the past may use that portion of his remaining entitlement to purchase a second home.

The VA loan process. 

The first step in the process is to determine if the veteran has a certificate of eligibility.  A certificate of eligibility notifying the lender the veterans eligible for the VA loan and what his or her entitlement will be.  Presently, the Times receive this form as part of their discharge papers.  If the veteran does not have this form, he or she will have to apply to the VA for certificate of eligibility.  This is done by submitting a request for certificate of eligibility (VA Form 26-1880) along with a copy of his or her DD-214 (discharge paper). This form needs to be submitted before any other part of the loan goes forward because only the VA may determine that the veterans eligibility for a loan, and it is likely that this process will take some time.

All lenders are responsible for performing in full to VA requirements.  This includes the use of the approved appraisers and underwriters.  All VA loans require the following additional documents from the lender:

VA form 26-0286 Loan Summary Sheet

VA form 26-8320 Certificate of Eligibility
VA form 26-8998 Acknowledgement of Receipt of Funding Fee
VA form 26-1843 Certificate of Reasonable Value (provided with appraisal)
VA form 26-1820 Report and Certification of Loan Disbursement
A HUD-1 Settlement Statement
 

VA Closing Costs
Closing costs that may be charged to the buyer are considered "allowable" closing costs per VA.  These are buyer costs that are reasonable and customary as determined by VA.  All other costs are considered non-allowable are are generally paid by the seller when purchasing a home or the lender when refinancing your current VA mortgage.  The following tables gives a break down of these costs: