VA Home Loan Borrowing Limits

How Does a VA Mortgage Work & What are the VA Loan Borrowing Limits?

There are so many decisions to be made when purchasing a home, including what type of home loan to use. The financing choices are as plentiful and varied as the homes on the market. One of the best options available to former and current members of the U.S. Military is the VA loan. If you are eligible for a VA loan, this could be an ideal loan for you.

As you begin your journey toward homeownership, it is important to know not only what your VA home loan borrowing limits are, but also how the loan process works in general. We hope this article will help explain some of the terminology and steps  that need to be taken, as well as how your VA home loan will be determined.How much money can I borrow

VA Home Loan Borrowing Limits

One significant benefit of a VA home loan is that the VA’s guarantee may make homeownership an opportunity to someone who otherwise could not purchase, or may allow a buyer to purchase more home than they could with a conventional mortgage. The VA guarantee acts as part of the down payment requirement, which is typically 20%.

There is no maximum VA loan amount, it is the guaranty amount that will fluctuate. For a loan up to $45,000, the VA will guarantee up to 50%. For loans $45,001-$56,250 the maximum guaranty is $22,500. For loans between $56,250-144,000, the VA will guarantee up to 40%. For loans $144,000 or more, it is up to an amount equal to 25% of the county loan limit.

To meet demand, the VA established a secondary entitlement that parallels conventional lending limits of up to $484,350 ($726,525 in high-cost areas). For home loans greater than $144,000, the VA will guarantee the lesser of 25% or $104,250.

EXAMPLE: Loan amount is $200,000, VA guarantee is up to $50,000

Lending Law

There are a few key regulations you should be aware of when you start shopping for a home loan. They are all in place as a means of protection for the borrower.

Consumer Credit Protection Act of 1968

This act is sort of the umbrella regulation under which the others fall. It was passed by Congress as a means to protect borrowers from abuse by lenders.

Truth in Lending Act

Also passed in 1968, the Truth in Lending Act (TILA) outlines the disclosures that lenders must make to borrowers and the timeline of those disclosures. Before you close on a mortgage, the lender must provide a Truth-in-Lending Disclosure Statement that details the interest rate, terms, and conditions of the mortgage. This statement will also have a breakdown of fees and will explain which fees may change and by what percentage. It should also provide loan product comparisons so you as the borrower are fully aware of what is available.

Take the Disclosure Statement to your closing and compare it to the one provided at closing, as well as to your HUD-1 statement, to make sure all the numbers are still accurate.

Real Estate Settlement Procedures Act

Partnering with the Truth in Lending Act, this legislation requires that lenders clearly explain the financial responsibilities of the borrower. It outlines the monthly mortgage payment, costs involved in closing (such as taxes, insurance, and origination fees), the schedule of payments, and any penalties that may occur, such as a prepayment penalty.

Equal Credit Opportunity Act

Simply put, ECOA ensures that all eligible borrowers have access to financing. Lenders may not discriminate based on race, religion, gender, age, place of residence, place of business, or any other biased factors. For example, a lender cannot deny a woman of childbearing age because she may one day have a child and her employment status could change.


Low VA Rates can make the dream of owning a home a reality without the struggle of saving a massive down payment.

 

What is a Land Sale Contract?

Land Sale Contract or Land Contract

 

If you’ve run into this term before, you either know what it is or you’re really curious. Why? Because it’s usually said next to the word ‘mortgage’ or ‘deed of trust’ and juxtaposed as an alternative to those things. This is because that’s exactly what a land sale contract is; an alternative to a mortgage or deed of trust. However, before you get too excited, land sale contracts are usually not awesome; the best time to use a land sale contract is when you cannot qualify for a mortgage or deed of trust. We’ll speak candidly about land sale contracts in this article to give you a good understanding of the advantages and disadvantages of them.

VA Land Sale Contract

The Biggest Difference

The biggest difference (and the root of all the other differences) is that where a mortgage or deed of trust is an instrument to borrow money from a bank or lender, a land sale contract is an instrument to borrow money directly from the seller of the home. So if you purchase a home with a land sale contract, you will be making your payments directly to the seller, rather than to a bank or lender. As mentioned, this difference is the root of most (if not all) of the other differences between a land sale contract and a mortgage/deed of trust.

 

The Other Differences

Because you will be making arrangements directly with the seller of the home, there is a lot less regulation on what the terms of the land contract can be. Agreements between two individuals can be whatever the two agreed on. When you are considering a land sale contract, remember that the seller can ask whatever interest rate he or she wants, and it’s up to you to take it or leave it. Also, when you purchase with a land contract, you immediately receive what is called an ‘equitable title’ and the seller retains the legal title until the home is completely paid off. This makes for some interesting differences in the way ownership is treated while payments are still being made, and if payments stop prematurely.

 

The Benefits of a Land Sale Contract

The biggest benefit of a land sale contract to you as the borrower is that it might enable you to get a house when you otherwise couldn’t. If you’re a veteran and eligible for VA loans, you should definitely apply for a loan here at Low VA Rates before you pursue a land sale contract, because our credit requirements are much more flexible and human than other lenders. Land sale contracts, however, can be a way for you to purchase a home even if your credit does not permit you to obtain a mortgage or deed of trust. Much like a mortgage or a deed of trust, when you use a land sale contract you have assurance that the seller can’t just kick you out and sell the home willy-nilly. The seller cannot sell the home unless you default on your payments.

 

The Costs of a Land Sale Contract

Land sale contracts can be tough pills to swallow. The seller can set whatever interest rate they want, and since you’re likely pursuing a land sale contract because you can’t qualify for a traditional financing option, the interest rate will probably be much, much higher Signing the VA Contractthan it would be otherwise. Additionally, the seller can require as high of a down payment as they want, and it’s up to you to take it or leave it. Most sellers won’t require as high of a down payment as banks and lenders, since the lack of cash-on-hand is one of the most common reasons a borrower can’t qualify for a mortgage/deed of trust, but some will.

 

That’s not all. Where a lender or bank has to go through a process before foreclosing on your home, the hoops a seller has to jump through vary by contract. If you default on your payments, and the seller decides to have you leave the home, you forfeit all the money you’ve paid the seller up to this point, and the seller keeps the money and the home, including any revenue from selling it. You’ll want to have a real estate attorney look over the contract with you and make sure that you have a reasonable amount of time in case of default to correct the situation before the seller can kick you out.

 

Conclusion

So, a mortgage/deed of trust is almost always preferable to a land sale contract, but a land sale contract can be preferable to not buying a house.

 

FAQ How long do VA loans take

How Long do VA Loans Take?

 

This is a good question, but unfortunately there’s not a set answer, and it can vary depending on the type of loan you’re getting (e.g. new purchase vs. refinance). However, we can give you ballpark numbers so you have a general idea. The general rule of thumb is that it takes around 45 days to get a VA loan. However, if you’re refinancing an existing VA loan with an IRRRL, you can get it done in as little as 10 days, while some new purchase loan can take up to 90 days depending on a variety of factors. We’ll cover some of the variables here so that you can get a better idea of what to expect, but to get an accurate answer for your situation, you’re going to be better off speaking with your loan officer, or a VA-approved lender if you don’t have a loan officer you’re working with.

How Long do VA Loans Take?

One of the biggest variables that can affect how long your loan takes is whether it needs to be submitted to the VA for prior approval. There are two types of VA-approved lenders: those who have received automatic authority to approve most loans without prior approval from the VA, and those who have not received that authority. Instinctively, you may be inclined to avoid lenders that have not received that authority, but there are perfectly legitimate reasons for not getting it. For example, that particular lender may simply not do enough VA loan business to make the process of getting automatic authority worth it. In addition, there are some loan situations that must be submitted for prior approval before being closed regardless of whether the lender has automatic authority. Your lender will let you know if your situation is one of these.

 

The other major variable has nothing to do with the lender; it’s you. When my wife and I were buying our first house, there were several times my loan officer sent me an email requesting documents, and I took a week or two to get back to them. Consequently, the loan took a very long time to close, and I had no one to blame but myself. If you want to get your loan done quickly, respond within a day or two to any requests for information that your lender makes, and try to come prepared with everything you need from day one. Sometimes borrowers in a hurry can be their own worst enemy when they forget or postpone sending the lender the information they need to progress on the loan.

 

There are plenty of other variables that can contribute to how long it takes to get a VA loan. The schedule of the VA appraiser, for example, can set the loan back as much as a full week if they happen to be busy or out of town. Since the loan can only progress to a certain point before the appraisal has been done, it can often wait days for the appraiser to get to the home, appraise it, and get the report back to the lender. There is also the schedule and workload of the loan officer to consider, the schedule and workload of the underwriter, and issues with your loan application. There could be things that come up in your credit report that need to be resolved before the loan can move forward. How long it takes to take care of those things affects how long it will take for the loan to close. This is yet another reason why it’s wise to get your credit report cleared up before you ever apply for a VA loan.
There are some things you can’t control – if the underwriter comes down with the flu in the middle of underwriting your loan, there’s not much you can do about it. You also cannot control what information the loan officer or underwriter will request from you. You can’t control how quickly your employer verifies your employment, or how quickly your credit report comes back. However, there are plenty of things you can do to speed up the process. Start thinking about your VA loan at least a year before you intend to get it: clear up any issues on your credit report, pay off and close any credit cards you don’t strictly need, start saving up for closing costs and a down payment, and start striving to find full-time work if you’re only working part-time. If you do everything in your power to be prepared, you’ll find that getting a VA loan is a fairly painless process.

The Benefits of Buying a Home with a VA Loan

If you are a veteran, an active service member, a reservist, an eligible surviving spouse, or a member of the Public Health Service, it is well worth your time to look into a home loan funded by the U.S. Department of Veterans Affairs (VA).

Here are six big reasons why a VA loan can work to your advantage as a homeowner:

  1. If you are a qualified buyer, a VA loan lets you purchase a home with no down payment. This is certainly one of the greatest financial advantages open to a new homeowner. Research shows that for most Americans, the single greatest obstacle to getting into their own home is saving up the down payment conventional banks and other lending institutions require.
  2. There are no monthly insurance premium payments on a VA loan. VA loans are guaranteed by the U.S. government, which is the “benefit” part of your VA loan. The average VA loan homeowner saves over a thousand dollars a year in insurance premiums.
  3. There are no lender fees or point required. With the U.S. federal government as the loan guarantor, the normal fees that a bank or other lending institution typically adds to the loan transaction do not apply. This simple waiver of fees can result in thousands of dollars of savings, depending on the circumstances and the value of your home.
  4. You can refinance to a lower interest rate with an Interest Rate Reduction Refinancing Loan (IRRRL), requiring no appraisal or income verification in most cases. You can either finance the cost of the refinance into your loan amount or the lender may pay your closing costs. You are not required to have cash in the transaction to qualify for an IRRRL.
  5. You don’t have to be a first-time home buyer to qualify for a VA loan. While there are policies governing the qualification for VA loans, provisions have been made to accommodate the home buyer in a range of varying circumstances. Qualified buyers can reuse their VA home loan benefits, so long as they keep within the specified requirements. The bottom line here: it’s worth your time to look into getting a VA loan, even if this isn’t your first home.
  6. Current financial circumstances in the U.S. have created a window of opportunity for the qualified buyer looking to get a VA loan. The real estate market is loaded with properties at value prices. The recent real estate crash and devaluation of home prices means that you have the market full of attractive homes to choose from—and at bargain prices among the best in recent memory.The VA also has a large selection of foreclosed homes that you can choose from. The department markets its foreclosed homes through its Real Estate Owned (REO) property list, managed by BAC Home Loan Servicing, LP. These properties are listed by agents through your local Multiple Listing System (MLS).

The Department of Veterans Affairs has a wealth of information on their website: http://www.va.gov, including a Frequently Asked Questions (FAQ) section that you will find very informational. If you want information and a resource list that is a little closer to home, you can search online for your state government’s department of Veterans Affairs.

Will VA loans stand the test of time?

 VA loans and their ability to survive new regulations

If you would have asked me a year ago if VA loans would see massive amounts of overhaul and guideline changes, I would have laughed at you and said “NO WAY”! You see I have been in the mortgage industry since 1997; I have been doing VA mortgage loans the entire time also. As the housing market heated up and everyone was jumping on the subprime and/or option ARM bandwagon, I stood my ground and built my business around good old fashioned VA home loans. It was a regular occurrence in my office to have representatives from banks, mortgage lenders, and all types coming into our office to try to convince me and my loan officers to start “pitching” or “selling” these unique new and “profitable” loans. I never once swayed. A good friend of mine named Garret had stopped doing VA loans and began building a very successful mortgage operation around the option arm loan. We had many opportunities to change our model from VA loans to something else, and frankly I may have made a lot more money in the short term. I however, was not purely motivated by money like many that were doing loans at that time. Was an option ARM or a subprime loan good for the homeowner? Those loans kind of came out of nowhere and what would happen if they disappeared one day? When I looked at VA loans I realized they were cut and dry, black and white and had stood the test of time and it didn’t matter if you were talking about a Georgia VA loan, North Carolina VA loan, or any other kind of VA loan. I enjoyed serving American soldiers both active and retired and had confidence in knowing I was offering these people a solid loan that I could count on never going away or changing.

Let’s now fast forward to 2009 and the soon to be 2010. Option ARM loans are nonexistent, subprime loans are shunned and gone.  VA loans are more popular than ever and are being utilized like never before.  Do you think my ideas and thoughts on VA loans have been unscathed or unchanged in light of the mortgage meltdown or real estate implosion? They have changed quite a bit! I still think the VA loan is the best loan by a long shot. If you are an eligible veteran, then you should always use your VA entitlement and get a home with the help of a VA loan. However, I sometimes feel at this point that the never changing, black and white, old fashioned VA loan will change and could essentially fall from grace if the big wig government lawmakers keep trying to get involved in mortgage regulations.

Here is a short list of POSITIVE attributes of the VA loan program as it was/is and a list of what possible changes may be coming/already have come

Positive Attributes of the VA Loan Program

Current Status

Comments

100% no money down purchase option

Still available

FHA canceled the no money down option and some think VA may follow suit.  Let’s hope not.

No minimum fico score required

all major banks and lenders require a 620 score.  VA does not take a stance but is allowing banks to add this requirement.

We feel this is a HUGE slap in a veteran’s face.  Suppose the VET got hurt in battle and has medical expenses that are hurting his/credit but all other accounts are to date and clean.  In the past banks took that into account and now they don’t.

Streamline refinancing with no appraisal or employment verification.

Most banks or lenders want an appraisal or another form of verification of property value.  Wells Fargo is a big proponent of this dumb rule.

You cannot name a single city in out country where the home has NOT lost value.  Why allow a veteran to buy a home with no money down, then force them into a high rate during low rate periods, by telling them, “sorry your home is not worth what it used to be!”  Give me a break.

1-2 30-day late payments are okay on your mortgage if you want to refinance.

NON-EXISTENT.

Why are we seeing all this talk about bailing out the homeowner and make housing more affordable, yet America’s veterans can not get a break?  In the past banks were okay with a late or two if the veteran was current at the time of refinancing.

NO employment verification on VA streamline refinance.

almost non-existent, banks and lenders are all verifying employment.

On a streamline as long as the veteran is making payments on time they should be allowed to refi to a lower rate.  Un- employment is at an all-time high and we need to help those that are still making payments and trying to keep their houses.

So veterans if you are reading this, please don’t be bummed out but please be alarmed.  Your hard-earned VA benefits are being jeopardized by people in Washington and Big Banks that took bailout money.  I will fight this fight along with many others to protect your hard-earned benefits and I will keep doing loans for Veterans as long as the market allows and tells us loan officers that Veterans deserve special treatment!

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*Annual savings calculator based on 2015 monthly average savings extrapolated year-to-date.