We represented a disabled US Marine recently and put him in a home with no down payment and very little of his own money. I will write about the deal in future blogs. At this time there is no reason for a disabled veteran to be homeless or even be renting as they can pay less for a mortgage to own a nice home than they would have paid to rent a one or two bedroom condominium in Las Vegas. So I asked John LeFrancois, who is our mortgage partner, to do an article about VA loans to enlighten those US veterans about VA loans.
Please find his article below.
In today’s lending market and with the demise of 100% loan to value mortgages and sub-prime loans, there is a program that is a sleeping giant and it is waking up from its deep slumber. It is the VA loan program. The VA loan was treated like a step child by most lenders only a couple of years ago, and was barely used due to the 100% LTV niche mortgages that were so widely available then. All that is about to change, especially now that Down Payment Assistance has been legislated out of the mortgage market with HR 3221 that was recently passed into law and signed by George W. Bush.
According to veterans data records there are 23.8 million U.S. veterans and yet less than 10% have existing VA loans. Why is this even remotely possible? For years the industry has shied away from these types of loans, because it was perceived to be burdensome and a lengthy process and was not as competitively priced as conventional loans. Guidelines of the past were more lenient in qualifying and with the documents that were needed. With lending criteria tightening and with FHA and Conventional loans now requiring a down payment, the VA loan has come into its own, as the King of mortgages with no down payments.
Real Estate Agents should be aware of the huge market that is untapped because of the potential VA loans that are available to eligible borrowers. Let’s examine VA loan benefits in today’s market versus conventional and FHA.
1. VA loans have looser guidelines then conventional and FHA loans. No front end Debt to Income ratio like Conventional and FHA, and VA only has a back end ratio of 41%. (Can be higher in certain situations.)
2. Veterans can purchase a home with “Zero Down” with no Mortgage Insurance Premium unlike the conventional loan that needs a 5% down or FHA loan that would need a 3% down until October 1, 2008 then it will be 3.5% down.
3. In addition seller’s concessions are allowed up to 4% of the sales price to cover all closing costs, prepaid items and discounts. So in effect the Veteran can purchase a home with little or no money down, no closing costs and a 30 year fixed loan currently at 5.5% and with “NO” mortgage insurance premium.
4. Eligible veterans are entitled to a government guaranty of as much as $104,250.00 toward an owner occupied purchase. This is the same as a 25% of government sponsored enterprises’ conforming loan limit of $417,000.00. If the loan limits should change, then the guaranty can change with the new conforming loan limits.
5. The guaranty from the US Government of 25% of the loan from the lenders point of view is this; they are getting a 25% down payment from the borrower at the time of purchase. This is the power of a VA loan and why lenders are more inclined to underwrite these loans for a long time to come.
The first step in the process is to determine if the veteran is eligible for a VA loan. The most effective way to determine if a veteran is eligible is by getting a Certificate of Eligibility. This can be done through the VA website and obtain the form from the Automated certificate of eligibility (ACE) system. Your professional mortgage lender can assist the veteran in getting this.
Once you have the form it will specify the total amount of eligibility which will be determined by three factors.
1. If the veteran was honorably discharged.
2. If the veteran has used eligibility in the past, and
3. If the VA is still guaranteeing a previous loan for the veteran.
If a veteran has used the a portion of eligibility in the past and the loan was assumed (VA loans are assumable) and is still guaranteed by the VA then the veteran’s remaining eligibility would have to be calculated by deducting the previous guarantee from the lifetime guarantee.
There are some additional qualifying criteria that are different for underwriters of a VA loan that is different from conventional and FHA loans underwriters. When calculating the debt to income ratios you must take into account monthly upkeep by multiplying the square footage of the house by $0.14 and then determine the residual income that is left. The VA has determined by areas of the country what the residual income based on the number in the family should be.
If a veteran has a service related disability that is 10% or greater, then the VA funding fee is waived.
This is a short overview of VA loans. To get more information on VA loans you can call my 24/7 Toll FREE recorded hotline at 1-877-299-2242.
Subject Material:
Ext. 600 Why should you consider a VA Loan? (Imperative Info)
Ext. 601 What is a VA Guarantee home loan?
Ext. 602 What is the housing recovery act?
If you have any questions you can e-mail me at john.lefrancois@dalusa.com
I am waiting for confirmation from Allure’s builder before I can publish Allure’s incentives. But I promise you it will be big news.
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