VA Mortgages

VA Loans are insured by the Federal Government. While FHA is targeted towards first time home buyers or affordable home buyers, VA programs are limited to members of the military.  VA loans are available to active, inactive, and retired members of the military and members of the military reserve.  Surviving spouses have eligibility rights as well.

The Federal Government wants to assist more people purchasing homes.  The government created the VA program, which grants loans to veterans who might not be able to qualify for another program.  If lenders choose to grant loans under the expanded VA guidelines, the federal government guarantees the lender will not suffer a loss in the case of default.

While FHA refers to the process of insuring against loss as “insuring”, VA refers to the process as “guaranteeing” the loan.  The concepts are similar, but the vocabulary is different.  Veterans are given a document called a Certificate of Eligibility which outlines their VA loan benefit.

Similar to FHA’s UFMIP, VA charges a funding fee, which is non-refundable.  The rationale is similar to the reasoning behind FHA’s UFMIP, namely the funding fee is used to fund the VA loan program.  The funding fee can be substantial.  The fees are outlined below:

Loan Fee Structure for VA-Guaranteed Loans
Veteran Reservist/National Guard
First Time Use
Downpayment
Less than 5 percent(includes cash out refinances) 2.15% 2.40%
At least 5 percent but less than 10 percent 1.50% 1.75%
10 percent or more 1.25% 1.50%
Second and Subsequent Use
Downpayment
Less than 5 percent(includes cash out refinances) 3.30% 3.30%
At least 5 percent but less than 10 percent 1.50% 1.75%
10 percent or more 1.25% 1.50%
Refinancing Loans
Interest Rate Reduction 0.50% 0.50%
Other
Assumptions Service-connected Veterans 0.50% 0.50%
Service-connected Veterans 0.00% 0.00%

The numbers outlined previously refer to the fee as a percent of the loan amount.  The “initial” and “subsequent” distinction refers to how often the veteran has used their eligibility for VA financing.  If the veteran has not used a VA loan before, they qualify for initial use.  Otherwise, the loan would be considered subsequent use.  The funding fee can be financed into the loan amount.

While VA does offer 100% financing, the funding fee can be reduced if the borrower pays a down payment.  VA loans do not carry any type of monthly mortgage insurance.

VA uses a different method than most types of loans to evaluate whether or not a borrower’s income is sufficient for the requested loan.  VA uses a residual income analysis.  The borrower’s monthly obligations are totaled and subtracted from the borrower’s monthly income.  This residual income must be equal to or greater than the income requirement set forth by VA underwriting guidelines.  This analysis is performed as an extra layer of protection to ensure the affordability of the loan for the veteran.

Maximum VA loan amounts are a function of a borrower’s entitlement amount, which is found on the borrower’s Certificate of Eligibility.  VA typically follows conventional guidelines when setting the maximum VA loan amount.

VA also has a unique appraisal process.  An appraisal is ordered through a VA approved appraisal and sent to the local VA office.  The local VA office evaluates the appraisal and issues a Certificate of Reasonable Value (CRV) which contains the approved appraised value of the subject property.

Like FHA loans, VA loans involve sometimes burdensome documentation.  VA loans also have fairly stringent property standards, but strive to help veterans as much as possible.  VA underwriters will often look at an individual veteran’s situation and make loan decisions which do not conform to normal guidelines.

In order to confirm eligibility we’ll need to have your COE (certificate of eligibility).

If you have your current Statement of Service (if Active) or your DD214 you can log onto the VA eBenefits website and order your COE.  Click HERE for more information on the VA Home Loan Program eligibility information or call us.

For detailed information on our VA loan program including rates, fees and the timeline of getting a Pre-Approval… call an iLoan Loan Originator today.