For purchase home loans, payment in cash is required on
all closing costs, including title search and recording fees, hazard insurance premiums and prepaid taxes. For refinancing
loans, all such costs may be included in the loan, as long as the total loan does not exceed 90 percent of the reasonable
value of the property. Interest rate reduction loans may include closing costs, including a maximum of two discount points.
except those receiving VA disability compensation and unmarried surviving spouses of veterans who died in service or as a
result of a service-connected disability, are charged a VA funding fee. For all types of loans, the loan amount may include
this funding fee.
To qualify for a VA
purchase home loan, a veteran or the spouse of a service member must certify that he or she intends to occupy the home. When
refinancing a VA-guaranteed loan solely to reduce the interest rate, a veteran need only certify to prior occupancy.
Financing, Interest Rates and Terms
obtain VA-guaranteed loans through the usual lending institutions, including banks, savings and loan associations and mortgage
brokers. VA-guaranteed loans can have either a fixed interest rate or an adjustable rate, where the interest rate may adjust
up to one percent annually and up to five percent over the life of the loan. VA does not set the interest
rate. Interest rates are negotiable between the lender and borrower on all loan types.
may also choose a different type of adjustable rate mortgage called a hybrid ARM, where the initial interest rate remains
fixed for three to 10 years. If the rate remains fixed for less than five years, the rate adjustment cannot be more than one
percent annually and five percent over the life of the loan. For a hybrid ARM with an initial fixed period of five years or
more, the initial adjustment may be up to two percent. The Secretary has the authority to determine annual adjustments thereafter.
Currently annual adjustments may be up to two percentage points and six percent over the life of the loan.
lender charges discount points on the loan, the veteran may negotiate with the seller as to who will pay points or if they
will be split between buyer and seller. Points paid by the veteran may not be included in the loan (with the exception that
up to two points may be included in interest rate reduction loans). The term of the loan may be for as long as 30 years and
Loan Assumption Requirements and Liability
VA loans made on or after March
1, 1988, are not assumable without the prior approval of VA or its authorized agent (usually the lender collecting the monthly
payments). To approve the assumption, the lender must ensure that the assumer is a satisfactory credit risk and will assume
all of the veteran’s liabilities on the loan. If approved, the assumer will have to pay a funding fee that the lender
sends to VA, and the veteran will be released from liability to the federal government. A release of liability
does not mean that a veteran’s guaranty entitlement is restored. That occurs only if the assumer is an eligible veteran
who agrees to substitute his or her entitlement for that of the seller. If a veteran allows assumption of a loan without prior
approval, then the lender may demand immediate and full payment of the loan, and the veteran may be liable if the loan is
foreclosed and VA has to pay a claim under the loan guaranty.
Loans made prior to March 1, 1988, are generally freely
assumable, but veterans should still request VA’s approval in order to be released of liability. Veterans whose loans
were closed after Dec. 31, 1989, usually have no liability to the government following a foreclosure, except in cases involving
fraud, misrepresentation, or bad faith, such as allowing an unapproved assumption. However, for the entitlement
to be restored, any loss suffered by VA must be paid in full.
VA Acquires Property Foreclosures
VA acquires properties as a result of foreclosures. Ocwen Loan Servicing, LLC, under
contract with VA, is currently marketing the properties through listing agents using local Multiple Listing Services. A listing
of “VA Properties for Sale” may be found at http://www.ocwen.com/reo/home.cfm. Contact a real estate agent for information on purchasing a VA acquired property.
Loans for Native American Veterans
Eligible Native American veterans
can obtain a loan from VA to purchase, construct or improve a home on Federal Trust land, or to reduce the interest rate on
such a VA loan. The maximum loan amount is equal to the Freddie Mac conforming loan limit for a single-family home.
This limit changes yearly. In 2008, the limit is $417,000 for the continental United States and
$625,500 for Hawaii, Alaska, Guam, and the U.S. Virgin Islands.
Veterans who are not Native American, but who are married
to Native American non-veterans, may be eligible for a direct loan under this program. To be eligible for
such a loan, the qualified non-Native American veteran and the Native American spouse must reside on Federal Trust land, and
both the veteran and spouse must have a meaningful interest in the dwelling or lot.
A funding fee must be paid to
VA unless the veteran is exempt from such a fee because he or she receives VA disability compensation. The fee, which is 1.25
percent for loans to purchase, construct or improve a home, and 0.5 percent to refinance an existing VA loan, may be paid
in cash or included in the loan. Closing costs such as VA appraisal, credit report, loan processing fee, title search, title
insurance, recording fees, transfer taxes, survey charges or hazard insurance may not be included in the loan.
Safeguards Established to Protect Veterans
safeguards have been established to protect veterans:
1. VA may suspend from the loan program those who take unfair advantage of veterans
or discriminate because of race, color, religion, sex, disability, family status or national origin.
2. The builder of a new home (or manufactured home) is required to give the purchasing
veteran either a one-year warranty or a 10-year insurance-backed protection plan.
The borrower obtaining a loan may only be charged closing costs prescribed by VA as allowable.
4. The borrower can prepay without
penalty the entire loan or any part not less than one installment or $100.
VA encourages holders to extend forbearance if a borrower becomes temporarily unable to meet the terms of the loan.