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VA Loan

Great VA Loan Benefits

va-home-loan-300x234$0 down, lower interest rates, no mortgage insurance, low debt to income ratio, no prepayment penalty, are just some of the benefits.

Veteran or Veterans family member attains certificate of eligibility either through Department of Veteran Affairs website or a VA certified lender. VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The loan uses the same Freddi Mac Form 65 Loan application as conventional loans.

The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans and to help veterans purchase properties with no down payment. The VA loan allows veterans 103.3 percent financing without private mortgage insurance or a 20 percent second mortgage and up to $6,000 for energy efficient improvements. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA; this fee may also be financed. In a purchase, veterans may borrow up to 103.3% of the sales price or reasonable value of the home, whichever is less.

Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, where a new VA loan is created, veterans may borrow up to 100% of reasonable value, where allowed by state laws. In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount. The additional .5% is the funding fee for a VA Interest Rate Reduction Refinance Loan or IRRRL.

VA loans allow veterans to qualify for loan amounts larger than traditional Fannie Mae / conforming loans. VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills. The maximum VA loan guarantee varies by county. As of 1 January 2014, the maximum VA loan amount in the California Bay Area with no down payment is $625,500 for a single family residence [SFR] but may rise to as much as $625,500. To check the VA loan maximum for single family residences in your county click here. VA loan limits are higher for multi-unit properties and can be up to 1,094,625 for 4-unit properties in a high cost area.

Note: I advise having reserves in your bank account when submitting an offer in the San Francisco Bay area. When you are willing to pay the difference in appraisal to keep escrow going forward in a “multiple offer” situation on the house you want, it helps.  There are many people that want to purchase and we will be competing with “all cash” buyers, 25-50% down payment conventional offers, etc. The VA Loan is an excellent product, BUT, the VA Buyer must be aware of competition and listen to advise of Realtor if one wants to get into a home.

Compare VA to Conventional Real Estate Transaction

Since there is no mortgage insurance cost a VA loan mortgage payment is typically hundreds of dollars less than for a conventional mortgage. But since there is a cap on the amount of a VA loan of $625,500 a first time home buying veteran is practically limited to either a town-home, apartment home, or condo in a high-cost SF Bay area city or a detached home in a lower cost Bay area city.

Table Comparing VA to Conventional Loans for High Cost SF Bay Area Counties

 

San Francisco, San Mateo, Alameda, Santa Clara, Contra Costa, Marin, County VA ConformingLoan*** VA JumboLoan*** ConventionalConforming Loan * ConventionalJumbo Loan
Loan Limit $625,500 $625,500+ $417,000 $417,000
Down Payment 0% Based off purchase Price and county loan limit 20% 20%+
Interest Rate Best Best Best Higher
Mortgage Insurance*** Insured by Government$0/month Insured by Government$0/month Typically .7% of loan value Can be higher
3 year ARM Yes Yes Yes Yes
5 year Arm Yes Yes Yes Yes

 

*Conventional loans are those that can be sold to Fannie Mae or Freddie Mac and have limits for the High Cost SF Bay Area Counties as shown at this link

*** No mortgage insurance on VA loans typically saves the veteran hundreds of dollars in monthly mortgage payments and is sometimes a factor in loan qualification since the monthly payment is lower.

Other than this, the VA loan transaction process is similar to that of a residential or conventional real estate transaction. The “VA mortgage banking officers” typically guide Veterans through the process of determining the amount of a VA loan they are qualified for.

The VA loan also allows for more flexibility in regards to qualifying and has far less stringent guidelines than a jumbo loan. With the ability to get a much lower interest rate, and less money down, you have the ability to keep your mortgage payment the same, or less, than other programs while not tying up all of your reserves.