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VA Loans

What is a VA Loan ?

A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). The loan may be issued by qualified lenders.

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 in areas where private financing is not generally available and to help veterans purchase properties with no down payment. Eligible areas are designated by the VA as housing credit shortage areas and are generally rural areas and small cities and towns not near metropolitan or commuting areas of large cities.

 

The VA loan allows veterans 100 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 an VA Interest Rate Reduction Refinance.

 

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Popular Types of VA Loans

The VA loan program is designed to be as flexible as possible, offering a variety of different types of loans. For a first-time buyer, the variety of different options can seem daunting, but as long as you have a good lender by your side, you’ll be able to pick the type of loan that will work best for your specific situation. There are two categories that all loans fall into: new purchase loan, and refinance loan. A new purchase loan is just like it sounds; it is for someone who is buying a home that they do not currently own and have never opened a loan on before. A refinance is a loan that replaces an existing loan on a property. In other words, a refinance is taking out a new loan with better terms to pay off the remaining balance on the old loan.

 

The VA Home Loan Fixed Rate is the simplest way to purchase the home of your dreams. With this type of VA Loan, you know from the start what the monthly payment will be for the next 15 to 30 years, depending on the life of the mortgage.

To protect veterans, the VA has set financial requirements that borrowers and/or their spouses must meet, with a debt-to-income ratio that will allow you to see if you can truly afford your VA mortgage. The VA Home Loan debt-to-income ratio lets you to determine upfront whether you can comfortably meet all the expenses of home ownership.

Your debt-to-income ratio alone won’t determine if you’re eligible for a VA home loan. For complete eligibility, there are many other factors including your credit history that count. Check your credit rating and make sure it’s as high as possible before you apply for your VA Home Loan….get started as soon as you know you’re in the market for a new home.

Loans Benefit
  • The interest rate is fixed for the life of the loan (whether interest rates go up or down).
  • Payments generally stay the same each month.
  • No money down unless the purchase price is greater than the assessed value of the home.
  • No private mortgage insurance required.
  • Closing costs are limited.
  • VA guaranty means competitive interest rates.
To be eligible for a VA Home Loan, you will need
  • An excellent credit history
  • A history that shows a conservative use of consumer credit
  • Minimal consumer debt
  • Long-term employment
  • Significant liquid assets
  • Military benefits and more

The VA offers Adjustable Rate Mortgages, a home loan in which the interest rate and monthly payments for P&I (principal and interest) may change during the life of the loan.

A VA Adjustable Rate Mortgage, or ARM, differs from a fixed rate loan in this major way: with your fixed rate loan, the P&I payments and interest rate are constant. ARMs also differ from GPMs (graduated payment mortgages) in that with GPMs, the payment amount increases over the first 5 years of the loan while the interest rate remains the same.

With a VA ARM, your quoted interest rate is the interest rate that will be charged for the first year of the loan, and it may remain in effect for 12 to 18 months depending on the change date set out in the terms of the ARM. That initial interest rate is agreed upon by the lender and the veteran, and must reflect current adjustable mortgage rates.

The change date is when the annual adjustment of the interest rate will occur, and it is always disclosed in the documents signed at loan closing. The initial change date must occur between 12 and 18 months after loan closing, and then annually on the same date.

Perhaps you’ve got a powerful career track in the military; in the next five years, you see your salary rising. You’re undecided about the constancy of a Fixed Rate Loan and the lower payments available through an ARM.

Adjusting to Your Future With a VA ARM

  • The interest rate is adjusted periodically by adding a margin to an index specified by the mortgage (a 1-year ARM adjusts annually).
  • Payments generally fluctuate along with the interest adjustment.
  • ARM’s have limits on the amount of interest adjustment that can be made in given periods and across the life of the loan.
  • No money down unless the purchase price is greater than the assessed value of the home.
  • No private mortgage insurance required.
  • Closing costs are limited.
  • VA guaranty means competitive interest rates.

With a VA Jumbo Home Loan, the term “jumbo” refers to any VA home loan greater than $679,650.

If you are a veteran who wants to purchase or refinance a home that costs more than $679,650, the VA Jumbo mortgage means you’ll just need to pay 25% on any amount over the defined limit $679,650.

Here’s a good example of a VA Jumbo Loan transaction: you’re an eligible veteran who has just found your dream home, and it costs $500,000. Your maximum VA home loan amount would be $453,100 with a $0 down payment. You, the eligible veteran, pay 25% of the amount over $453,100, which would be 25% of $83,000 or just $20,750. In effect, you’re purchasing your new home for a down payment of just $20,750 plus closing costs – a lot less than a standard 10% mortgage downpayment – and you’re getting the full benefit of a Jumbo VA Home mortgage in the amount of $417,000.

And now, veterans who qualify can apply for a VA Jumbo Home loan up to $1,500,000, with low (25% over $679,650) money down, under new VA Loans Maximum Guaranty Amount guidelines.

Cover a Larger Military Home Base

  • May be needed if over the standard $453,100 loan limit.
  • Depends on the limit for the county – contact us for more info.
  • Requires a small down payment.

The VA Hybrid ARM Home Loan offers an initial fixed interest rate for a period of three or five years, and then it adjusts annually.

For example, a 3/1 or 5/1 VA Hybrid ARM offers a 1% annual interest rate adjustment after the initial fixed interest rate period, with a 5% interest rate cap over the life of the loan. Interest rate adjustments occur on an annual basis, (except for the first adjustment which may occur no sooner than 36 months from your first mortgage payment on the 3/1 VA Hybrid ARM Home Loan or 60 months from your first mortgage payment on the 5/1 VA Hybrid ARM Home Loan.)

Additionally, while many conventional loans are affected by domestic and foreign indexes, the VA Hybrid ARM loan is only tied to the stable U.S. Treasury Index. Hybrid ARM loans also carry guaranteed rate caps. Rate caps ensure that interest rates increase by no more than 1 percent per year. In doing so, they protect borrowers from skyrocketing rates and add greater security to a loan. The rate caps on a VA ARM or Hybrid loan will stay in place for the entire life of the loan. All in all, Hybrid loans help veteran homeowners take advantage of rates much lower than those attached to your conventional 30-year fixed mortgage. Not to mention, the Hybrid loans carry no additional charges or hidden fees.

The benefits of a VA Hybrid Loan

  • Higher Monthly Savings – Lower rates help Veterans on fixed incomes save the most amount of money each month.
  • Faster Debt Reduction – Significantly lower start rates provide veterans more money to pay down higher interest rate debt.
  • Accelerated Mortgage Payoff – Savings applied to the principal balance help Veterans pay off their homes even faster with no change in current monthly payment.
  • Guaranteed Limits in Rate Adjustments – After the fixed rate period expires, the rate may only adjust once per year and by no more than 1%.
  • Faster Breakeven Periods – Lower rates with no additional fees compared to traditional fixed rate options mean the VA Hybrid loan pays for itself even faster.
  • Potential Rate Decreases – VA Hybrid loans adjust upward AND downward depending prevailing index rates. Many veterans in VA Hybrid loans now in adjustment have seen their rates decrease in recent years.

The 5/1 Hybrid Loan

When you see a 5-1 Hybrid loan, this means that the loan carries a fixed rate for 5 years and that the rate changes in 1 year increments after that period. 5-1 Hybrid loans are the most popular Hybrid options among veteran homeowners, especially those who think they’re likely to sell or refinance their homes within the next 8 years, such as growing families or empty-nesters. These homeowners don’t expect to be in the same house or with the same mortgage for very long, so the 5-1 Hybrid loan ensures five years of a good rate and predictable payments, with the possibility of transitioning into a better rate down the road.

The 3/1 Hybrid Loan

The 3-1 Hybrid loan is just like the 5-1 except that it guarantees fixed rates for 3 years. The 3-1 Hybrid program has low start rates of any VA loan available. Veterans who plan on selling or refinancing within as little as 5 years normally take advantage of the 3-1 Hybrid loan. This loan is also a good option for veterans dealing with heavy amounts of debt or for those who move around a lot for work. Active duty military personnel expecting to be transferred find their needs are well accommodated by the 3-1 Hybrid loan.

comparison between

VA vs. Conventional Mortgages

VA Loans Conventional Loan
0% Down payment Up to 20% Down payment
No PMI PMI Required
Competitive Interest Rates Increased Risk for Lenders
Easier to Qualify Standard Qualification Procedures