Back to Basics: Are You Eligible for a VA Loan?

Back to Basics: Are You Eligible for a VA Loan?

Veterans and servicemembers often ask us how to know if they qualify for a VA loan. That’s a very important question.

Not everyone qualifies, but if you’ve served on active duty in the military and received an honorable discharge, you’re probably eligible. There are other qualifications to check out, which we’ll explain below. We’ll also explain what types of properties are eligible and how to get a Certificate of Eligibility.

Time Served and Qualifying for a VA LoanTime Served

One of the most important qualifications for VA loan eligibility is whether or not you’ve served in the military on active duty for a certain amount of time, with different requirements for regular military, for the Reserves and National Guard, and for wartime and peacetime.

Regular Military

Whether you’re in the US military now or are a veteran, your VA eligibility depends on the amount of active duty you’ve served:

  • At least 90 days of wartime duty during these conflicts:
    • World War II: September 16, 1940 to July 25, 1947
    • The Korean War: June 27, 1950 to January 31, 1955
    • The Vietnam War: August 5, 1964 to May 7, 1975
  • At least 181 days of active duty during peacetime before the 1980s
  • At least 24 months of continuous active duty service during the 1980s and after, unless:
    • You served the entire time you were ordered to during the Gulf War, if it was at least 90 days OR
    • You’re on regular duty now (not active duty training) and have served at least 181 days (OR at least 90 days if you started your service during the Gulf War)

You also must have an honorable discharge. You may qualify with less active duty time than listed above if you were discharged because of other reasons, including:

  • A service-related disability
  • Hardship
  • Reduction-in-force
  • Convenience of the government
  • Early out

Some other types of service may qualify you for a VA loan. You might be eligible if you are:

  • A cadet with the US Military, Air Force, or Coast Guard Academy
  • A midshipman at the US Naval Academy
  • An officer of the National Oceanic and Atmospheric Administration (NOAA)
  • A merchant seaman from World War II
  • An officer of the Public Health Service
  • A US citizen who served with a country that was a US ally during World War II

Reserves and National Guard

Reservists/Guards that aren’t already eligible for VA loans from prior full-time military service become eligible after completing 6 years of service in the Reserves or Guard, unless they are released earlier due to a service-connected disability. Reservists/Guards must have an honorable discharge, while full-time can have less-than-honorable and still be considered for their VA loan benefits. The only exceptions to this rule for Reservists/Guards are if they are currently in an inactive status awaiting final discharge or still serving in the Reserves or Guard and therefore have not yet received a discharge of any kind.

If you haven’t qualified for a VA loan from any other service, you can qualify based on your Reserves or National Guard service. To be eligible, you must have served for at least six years with the Guard or Reserves (including attending annual active duty training and weekend drills) AND

  • Have an honorable discharge OR
  • Be in the Standby Reserve or Ready Reserve OR
  • Be on the retired list after honorable service

If you were discharged for circumstances outside of your control, you can still apply for a VA loan, even if you didn’t serve for six years. Those other reasons for discharge may include discharge for a disability related to your service, reduction-in-force, and hardship.

If you continue to serve after six years, you can apply for a VA loan while still serving. If you’re not sure if you qualify, please contact Low VA Rates, so we can help figure it out.

Age

Is there an age limit or age requirement to qualify for a VA loan? No, there isn’t. The only age requirement is the one that’s true of all legal contracts: a borrower has to be at an age and level of mental competence to be able to enter a legally binding contract. Those requirements vary by state.

For many military servicemembers, it makes sense to use their VA loan benefits early in life in order to start paying off a home. Others wait until they’re older so that their VA loan can help them lower their expenses around the time of retirement.

Some veterans even pay off a VA loan and then buy another house using a new VA loan. If you’re in that situation, you can use VA Form 26-1880 to apply to have your VA loan entitlement restored so you can use it on another home.

Surviving Spouse

If you’re the surviving spouse of a veteran, you may also be eligible for a VA loan in any of the following circumstances:

  • Your veteran spouse died during his or her military service or because of a service-related disability AND you haven’t remarried.
  • You’re the spouse of a servicemember who is MIA or is a POW.
  • Your veteran spouse was completely disabled and died for a reason other than his or her disability.

If you did remarry after your veteran spouse passed away, you may still be eligible for a VA loan if you remarried after you turned 57 OR you remarried on or after December 16, 2003. (If you remarried before December 16, 2003 and you were 57 or older, you may still qualify if you applied for your eligibility on or before December 15, 2004.)

Eligible Home Types

Only certain properties are eligible to be purchased with a VA loan. Here are some of the types of homes that can qualify:

  • Many normal houses that are outside of a city center (as long as they don’t have HOA terms that are too difficult)
  • Condominiums and townhouses that are on the VA’s approved list
  • Manufactured houses, as long as:
    • They are attached to a permanent foundation (or will be when purchased)
    • They and their lot are classified as real estate
  • Multi-unit properties with up to four residential units and one commercial unit, as long as the veteran lives in one of the units as a primary residence

A property must meet the standards of the VA’s Minimum Property Requirements (MPRs). That simply means it’ll be structurally sound, have good access, be in good repair, and so on.

Some properties are disqualified for VA eligibility. These include:

  • Residences that are not attached to a permanent foundation, such as trailers and RVs
  • Properties purchased just to be rented out

Zoning

The way a property is zoned can affect whether or not it’s eligible to be purchased using a VA loan. Some multi-unit properties, for example, are zoned as both commercial and residential, such as a condo that’s over a store.

In those cases, the VA decides if a property is eligible by determining its “remaining economic life,” which is a measure of the length of time the residential unit(s) will still be usable to be lived in. A VA appraiser is the only party that can officially decide whether or not a mixed-zone property is eligible.

Certificate of Eligibility (COE)

When you determine you’re eligible for a VA loan, you need to get your Certificate of Eligibility (COE) from the VA. It’s a document that declares to lenders:

  • That you’re entitled to use VA loan benefits
  • The dollar amount of your entitlement
  • Whether or not you’re exempt from the VA funding fee
  • Any exceptions to your eligibility

Most veterans and servicemembers simply ask their lenders to download a COE for them. Lenders can do this in a few minutes using their electronic connection to the VA’s system.

It’s unusual, but you can request your COE by mail. If you have a special reason to do so, print out VA Form 26-1880, complete it, and mail it to the address for your state, which is on page 3 of the form.

Another way to get your COE on your own is to use the COE section of the VA’s eBenefits portal. If you already have a login, you can use it to access the page on which you request your COE. Otherwise, you can register to get an account.

Benefits of a VA Loan

Remember, a VA loan is a benefit that is mostly exclusive to veterans, current servicemembers, and surviving spouses. The VA gives a guaranty to private lenders, which ensures that they’ll get back a portion of each loan (in case a borrower doesn’t repay his or her loan).

With the VA’s backing, private lenders are able to offer amazing terms and rates—better than many conventional loans can offer. These features include:

  • No requirement for a down payment on a home purchase
  • Potentially faster processing
  • Lower closing costs
  • Flexible options, such as buying land, building a new home, and making home improvements

Now you have a good idea of your VA eligibility, and you know how to get your Certificate of Eligibility. We invite you to check out the most popular types of VA loans at LowVARates.com.

 

Changes Made in 2012 in Regards to Surviving Spouses

2012 was a big year for changes to the VA loan program, mostly thanks to the passing of Public Law 112-154, or the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012. The Act brought several major changes to the VA loan program, one in regards to the occupancy requirement, where now a dependent child can fulfill the occupancy requirement on behalf of the veteran borrower, and another in regards to funding fee waivers, which now allows for medical records while on active duty to be used by the VA to verify what an active servicemember’s disability status will be upon discharge. Since an exemption to the funding fee is dependent on the servicemember’s disability status, the new verification methods allow for more veterans to be exempt from the funding fee.

But another big change has more to do with surviving spouses of veterans than the veterans themselves. A “surviving spouse” in the context of VA loans means specifically a spouse whose veteran partner passed away during service or due to a service-related disability. The Act changes VA policy in regards to surviving spouses in that it expands VA loan options for certain surviving spouses. Essentially, the change allows for surviving spouses of disabled veterans whose death was not directly caused by their disability to have VA loan benefit eligibility. From the VA Circular 26-12-9: “Public Law 112-154 expands home loan benefit eligibility to surviving spouses of certain totally-disabled Veterans. Now included as eligible are surviving spouses of certain Veterans who were continuously rated for a service-connected disability, but whose disability may not have been the cause of death.”

Now, this change does not apply to any spouse whose veteran partner was disabled. The veteran must fulfill one or more of four requirements in order for their spouse to be considered. This is only in the case that the veteran’s death was not caused by his or her service-related disability. The first option is if the veteran was either receiving (or would have been receiving if it hadn’t been for retirement pay) disability compensation for a service-connected disability rated totally disabling. This is a requirement because the change to expand VA loan benefits was made to assist surviving spouses who are likely struggling financially to keep their heads above water – if the veteran spouse had only a minor disability and wasn’t relying heavily on their disability compensation to make ends meet, the surviving spouse should, in theory, be better off upon the death of the veteran than the spouse of a totally disabled veteran.

The second option is that the veteran spouse had a rating of totally disabled for at least 10 years leading up to his or her death. This option, as well as the third option, exist to provide a degree of flexibility to help cover different situations with the same level of need. The third option is that the veteran was rated as totally disabled continuously for at least 5 years from their discharge date. Some disabilities become worse with time and a veteran won’t be considered totally disabled until the disability has become worse, while other disabilities heal and improve over time and a veteran might go from totally disabled to only partially disabled.

The last option is for a veteran who was a former prisoner of war and who died after September 30th, 1999, and was rated totally disabled for at least a year immediately leading up to his or her death. For all these cases, surviving spouses are exempt from paying the VA funding fee. Additionally, for a surviving spouse who is also VA-eligible, they are not limited to only one of the entitlement amounts, but can use both. From the VA Circular: “These newly eligible surviving spouses are not required to pay a funding fee. Additionally, a surviving spouse who is newly eligible under Section 202 of P.L. 112-154, and who also would be eligible for home loan guaranty benefits under his/her own entitlement, is not limited to only one of the various entitlements available.”

Any additional questions can be taken to a VA-approved lender or directly to the VA. Contact your VA Regional Loan Center or find an approved lender in your area to consult.

VA Loan Assumptions for a VA-Eligible Parent’s Home

VA loan assumptions are a major gray area for many borrowers. There’s not a lot of widespread understanding on this topic, and yet to some it is one of the most advantageous things about the VA loan program. A common question about VA loan assumptions comes from the children of parents who used their VA benefits to purchase their home. Often, the parents pass away before the home is fully paid off, and one of the children inherits the home, which is financed with a VA mortgage. The child wants to know if they can assume the VA loan, who they can contact if that is the case, and what fees to expect in order to assume it. The first clarification is that yes, VA loans are assumable, but has to be done in coordination with the lender, and may be required to get VA approval in order for the assumption to take place.

VA Pamphlet 26-7 provides guidance on VA loan assumptions and what is required for them. It states that for any loans after March 1st of 1988, the transferring (or assumption) of a loan needs to be approved by the lien holder if they have automatic authority. If the lien holder doesn’t have automatic authority, then they have to send it up to the VA for the underwriting process. From the Pamphlet: “Transfers of ownership on properties securing loans for which commitments were made on or after March 1, 1988, must have the prior approval of the loan holder or its authorized servicing agent if either of them have automatic authority. If neither the holder nor the servicer has automatic authority, the servicer must submit a credit package to VA for underwriting.”

The Pamphlet also provides instructions to the lender about how to carry out the VA loan assumption. For a seller trying to have someone assume their loan, they must apply for approval before any transaction takes place. If the lien holder has automatic authority, then the lien holder assesses the application and makes sure that the request complies with all of the requirements for a VA loan to be assumed. Where the lien holder has no automatic authority, the VA takes over. The text from the Pamphlet: “A seller must apply for approval of the transfer prior to completing the sale. Servicers and holders with automatic authority must examine the application to assess compliance with the provisions of 38 U.S.C. 3714. VA will make the determination in a case where neither the servicer nor the holder has automatic authority, following receipt of a complete application package from the servicer.”

For the loan to be assumed, it needs to be current (on track with its payments). If it’s not current, it needs to be brought up to being current before the assumption can take place. Also, the person that will be taking over the loan needs to have sufficient credit to qualify. While it may not always be the case, it is always safe to assume that the new borrower needs to be in a credit situation that would allow them to make a new purchase of a home for the same value as the loan they are assuming. Additional restrictions on or requirements for new borrowers assuming a loan may vary lender to lender, but will always center around making sure that the chances of default on the loan do not increase with the assumption. If you’re considering assuming a loan, or letting someone assume your VA loan, make an appointment with your lender and discuss their expectations for a VA loan assumption. You’ll be glad you did.

If the assumption is able to take place (it’s approved by either the lender or the VA, depending on if the lender has automatic authority), there will be fees associated with the assumption. The fee can be collected in advance of the assumption, and is dependent on whether the lender has automatic authority. The fee may vary slightly from lender to lender and even from assumption to assumption, but the maximum fee that can be charged by a lender with automatic authority is $300 plus what the credit report actually costed. If the lender has no automatic authority, then the maximum fee that can be charged is $250 plus the actual cost of the credit report.

VA Loans for Condos – The Right of First Refusal

Purchasing VA Approved Condominiums

It’s pretty widely known that a veteran can use their VA Loan eligibility to purchase a typical home, but it is less well-known that veterans can use their benefits to purchase a VA approved condos. There are a surprising amount of options that a VA-eligible borrower has when considering purchasing a home. In addition to a typical home or a condo, a veteran’s VA benefits can also be used to  townhomes, mobile homes, duplexes, quadplexes, and even manufactured homes. With each type of home there are different VA requirements and policies that one must comply with before being permitted to use their VA eligibility to purchase it. Condos are no different.

veterans administration approved condominiumsVeterans Administration Approved Condominiums

For a VA borrower looking to use their benefits to purchase a condo, there are a fair amount of rules and regulations they will need to be aware of. These are things that are unique to the situation of a condo purchase and so would not apply to other types of purchases. One of the biggest hoops to jump through for a condo purchase is making sure that the condo project is on the VA’s list of approved condos. The VA has a list of condos that they have approved for purchase and in order for a VA borrower to purchase a condo, it must be on that list. There are a variety of reasons why a condo project may not be on the approved projects list. Probably the most common is simply that no one has requested it to be added yet, but there are other reasons as well. One that might be surprising to many people is that a condo can be disapproved because of something called, “the right of first refusal” clause that might be included in the paperwork of the condo project.

Every condo project has an agreement of some kind that is similar in nature and purpose to a home owner’s association agreement. The agreement lists the rules and bylaws of the condo project and establishes the way things work in the condo. Sometimes, a clause in the condo project agreement establishes the right of first refusal. The right of first refusal is somewhat counter-intuitive, in that it doesn’t at first make sense why it would exist and why it would be problematic from the VA’s perspective. What the right of refusal states is that the association (the condo project) has the ability to buy or lease a unit before the unit is approved for sale to an outside buyer. Translation: if a project gets an offer on a unit, they have to offer the the condo owner’s association the unit before they are able to sell it to a third party.

As to why some condo projects have this clause in their agreement; good question. Someone on a condo board would probably be able to clarify that. However, the VA will not approve the purchasing of a unit in a condo project with the right of first refusal clause under any circumstances. The VA Home Loan Program for Real Estate Professional gives the following: “Condominiums must be approved by VA or HUD before any units in the project are eligible for VA loan guaranty.This is generally handled by the lender but a real estate professional or developer may submit documentation prior to a veteran being involved in a transaction to plan for the future. Common issues that do not allow us to approve projects are rights of first refusal or lease restrictions. VA does not have an owner occupancy ratio requirement but does have a 70% presale requirement.”

The VA doesn’t approve condo projects with the right of first refusal clause because the VA is concerned about protecting veterans, and helping veterans get suitable housing as quickly as the veteran needs it. With a condo project that has the right of first refusal, a veteran may go weeks or even months in negotiations for a unit, only to have that unit sold to the condo owner’s association and have all that time wasted, putting the veteran in an undesirable situation. The VA won’t approve those condo projects in order to make sure that doesn’t happen to a veteran who needs a suitable home quickly.

The VA Electrical Systems Minimum Property Requirements

The VA has what are called “Minimum Property Requirements” (MPRs) for many aspects of a home. These MPRs exist to ensure that a veteran does not purchase a home using their VA loan benefits that is not going to meet their needs. Minimum Property Requirements cover everything from water and plumbing systems to the foundation of the home, from termite damage to the possibility of flooding, and from safety standards to electrical systems. While there are exceptions to the VA MPRs, they are few and far between, and are usually specific to a location with extraneous circumstances that make it difficult or impossible for the home to meet the requirements.

It’s normal for these MPRs to raise a lot of questions for those hoping to buy a home with a VA loan. Understanding the MPRs before even beginning the house hunt is the best way to save both time and money, and prevent disappointment. No one wants to find the home of their dreams at a price range they can afford only to find out that it doesn’t meet the VA Minimum Property Requirements. The rules vary a bit area to area, but are relatively standard for most of the requirements. The home is evaluated to make sure it complies with the VA MPRs during the official VA appraisal that must take place before the loan is closed. The appraiser goes through the home and appraises the fair value of the home, which is the amount that the VA will guarantee the home for (and not a penny more, I might add), and also evaluates whether the home meets the minimum requirements. Appraisers generally don’t budge on these things, making it even more important to know what they’ll be looking for before they come.

Potential borrowers looking at an older home may face particular questions concerning the electrical system in the house. What does the VA require of electrical systems in a home, and what, if any, concessions do they make in the case of an older home that has an old electrical system? Does the house have to have a breaker system or can it have an older fuse box instead? Are there requirements for how many outlets each room must have or where the outlets must be located? These are great questions to ask and even better ones to answer. The sort-of nice thing is that the VA is pretty vague on this question. The VA has made no specific standard regarding the way the electrical system is set up – except in regards to safety. If there are exposed wires (especially live ones) in the home, that is certainly something the appraiser will take note of, but as far as whether the system is more modern or more old-fashioned, the VA itself makes no standard.

That’s not to say, however, that there are no standards on electrical systems for your home. Even though there is no blanket statement by the VA that dictates what types of electrical systems are approved and what ones are not, there are still requirements for those systems. The most efficient way for the VA to establish MPRs for electrical systems is to defer to the local authorities. Every area has building codes and regulatory agencies that have requirements and standards for electrical systems in houses. In order for an electrical system to be acceptable, it has to comply with all of the local building codes and regulations. The VA requirement essentially states that the authority on the matter is the local regulatory agency.

But for those specifically asking about the fuse box vs. the modern breaker system, the VA has a line just for you: “If a fused electrical system is acceptable to the local authority it is acceptable to VA.” The best way to know what types of electrical systems will be approved is to look up the local building codes and find out what the local regulations are for your area. You can also contact a VA-approved lender in your area to find out more details on all of the VA minimum property requirements and have many of your questions answered directly. A VA-approved lender will be very familiar with the appraisal process and should know about specifics for your area.

VA Refinance-Payoff Statements

During a VA refinance, processing will need to get in contact with the veteran’s current lender to request a payoff statement on their current VA home loan. A payoff statement of payoff demand is a statement from the borrower’s current lender showing the amount due on a VA loan to be paid off during the refinance by the new lender.

When requesting a payoff statement, the current lender usually charges a payoff statement fee. This is a fee that a lender charges to provide a statement showing the amount due on the loan. The fee varies depending on the lender. Generally payoff statements are received via fax and because of this method of delivery; the current lender can sometimes charge a payoff demand fax fee. The fax fee just like the payoff statement fee varies depending on the borrower’s current lender.

Once the payoff statement is received, processing will look at a number of different things on the statement; first would be the principal balance or note balance. This balance is the original amount that the borrower borrowed minus the principal portion of the borrower’s regular monthly payments and any other payments that were made directly to the principal balance of the home. Next processing would look at the per diem on the loan, this is the daily interest charged on a the VA loan.  In addition to the daily interest, you are charged you may also have other fees or amounts due added to the amount owed on your home.  Some examples could include:  escrow overdrafts, unpaid late or legal fees, forced insurance premiums etc.

Payoffs are an important part of a VA refinance because they will allow for the new lender to see if the veteran is current on his/her payments and how much the new lender will need to pay the current lender to payoff the loan.

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VA Payoff Statement

Veteran’s Guide to Understanding a VA Good Faith Estimate

Veterans must understand how to read and interpret a good faith estimate (GFE).  This is probably one of the most important documents when deciding what company to choose to handle the financing on the VA LOAN.  This GFE disclosure IS REQUIRED by the Real Estate Settlement Procedure Act (RESPA).  If you don’t get one then the broker or lender is not adhering to laws that govern the mortgage industry.

WHAT IS A GFE ?

In a nutshell this disclosure should list all the costs associated with the VA loan.  It will show the new monthly payment, payoff amount or Good Faith Estimatepurchase price amount, taxes and insurance and funds required to close or funds the VETERAN is getting back (refinance) and debts being paid off if applicable.  There are specific costs and they are broken down into categories or numbers.  I will list them below:

800 – ITEMS PAYABLE IN CONNECTION WITH LOAN

These are all the charges that the lender or broker will charge.  In this section would be listed the ORIGINATION or DISCOUNT FEE.  The appraisal and other broker or lender fees will be listed here too.  Please remember the  veteran will not pay the “junk fees”.  The DEPT of VETERAN AFFAIRS will not allow an originating company to charge these fees which in return should benefit the veteran.  Here is a list of the NON allowable charges.  NON allowable means that the Veteran cannot pay them; on a refinance the broker or lender must pay them or not charge them at all, and on a purchase the seller can pay them.

NON Allowable Fees/Charges

  • Attorney Fees
  • Brokerage Fees
  • Prepayment Penalties
  • HUD/Inspection Fees
  • Signing Fees
  • Escrow/Closing Fee

813 – COMPENSATION TO BROKER

Yield Spread Premium (YSP) is the fee the bank or lender (the entity lending the money who you will make first payment to) has the ability to pay the broker a fee or premium for locking your rate in at an above PAR rate.  We will discuss, understanding interest rates and points at another time.

1100 – TITLE CHARGES

All of the Title Charges will be listed here.  They are title insurance, title exam, wire and endorsements.  Just like the broker there are fees here that the title company cannot charge a Veteran.

1200 – GOVERNMENT RECORDING & TRANSFER CHARGES

The fees listed under this section would be recording fees, city and state tax stamps.  The recording fee is what the county recorder will charge for recording the new Deed of Trust.  State and City tax stamps are state specific.  Some states have tax stamps and other do note.

1300 – ADDITIONAL SETTLEMENT CHARGES

This area would list any pest, termite inspections and home inspections.

900 – ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE

This heading makes it sound like the VETERAN must pay for these before the loan can close.  This is not the case.  Is simply is referring to monies collected before the first payment.  The charges listed here are the interest that needs to be collected before the first payment is due.  With VA loans interest is billed in arrears which means when a payment is made in June the Veteran is paying for the interest accrued in May.  So lets say you close on the 20thof the month.  You will have 10 or 11 days of interest collected in this section.  With VA LOANS the VA FUNDING FEE is listed in this section.  If  Veteran is receiving VA disability then there will be no funding fee.  Veterans should pay close attention to this.  An experience broker knows not to charge a VAFF when disability is being received by the veteran.

1000 – RESERVES DEPOSITED WITH LENDER

WithVA loans your taxes and insurance will need to be collected with your monthly payment.  An escrow account is used to hold the money that is owed for taxes and insurance.  When a Veteran makes a payment a portion of the payment gets deposited into an account.  This account will continue to build payment after payment until the taxes or insurance are due.  The lender will make the payment for the Veteran.  This is very helpful because it will prevent unforeseen expenses on the home owner and delinquent taxes and insurance.  The amount collected upfront varies  based on the dates they are due.  For example, lets say that taxes are due in December and the Veteran is refinancing and their first payment is due in March.  The Veteran will have made 10 payments before taxes are due, but you must have enough for the year plus 2 months as a cushion.  So in this section we would collect 4 months.  This same principle applies to the insurance.

TOTAL ESTIMATED FUNDS NEEDED TO CLOSE/ TOTAL ESTIMATED MONTHLY PAYMENT

This just gives the overall costs and details of the transaction and the total new monthly payment.

Like I said earlier.  This is a very important disclosure and should be looked at very carefully.  In my experience the GFE should be used to compare offers from other companies and it also shows how competent the originating company is.  Remember also, that this is just an estimate.  Usually this will never be 100% accurate to the final costs.  Those are listed on the HUD 1 or Settlement Statement, however, the GFE should be as close as possible and should give Veterans a good idea what to expect cost wise when buying or refinancing a home.

Attention Veteran Mortgage Lenders, Banks, and Correspondants

 

VA Lenders and VA Mortgage Companies Add Risk Overlays and Guidelines to VA Loans

In an attempt to manage risk, banks and mortgage lenders are going to war with our nation’s finest homeowners; veteran home owners with VA loans. In the past few months alone, lenders such as Wells Fargo, Citi Mortgage, and Countrywide now Bank of America have added all kinds of stricter than normal underwriting guidelines. I am not personally against making some needed changes to the way we lend money in this country, however; when the country is making veterans, many of whom have served on the front lines of war, go to extreme lengths and at times impossible lengths to refinance or buy a home, that I feel is unjust.

Right now our country is doing everything possible to help the housing recovery and at the forefront of these efforts is the Federal Government’s attempt to keep interest rates as low as possible. Why are they keeping interest rates so low? The lower interest rates get, the more likely veteran home owners and conventional home owners are to want to refinance. Refinancing can do wonders for a slow economy like we have currently. By refinancing, a home owner is able to lower his/her monthly mortgage payments. On average Low VA Rates says that their typical veteran refinance saves around $75-$150 a month and has even saved over $500 a month for some veterans. (after arriving at home page, read the customer feedback) Just imagine how an additional $200 a month in every home in America could turn our economy around! That would do more than any Federal bail out or stimulus act by Congress for sure.

New Underwriting Guidelines are Hurting Veteran Home Owners

So let me bring this back to my initial reason for this post in the first place; to shed light on the unjust act of many of our nation’s lenders. Here is a list of some of the underwriting changes that have taken place in the past few months, by some of the nation’s largest VA lenders:

1. FICO scores now required for a streamline refinance
2. FICO scores required for a purchase loan
3. Break-even or recoup test imposed for streamline refinance
4. Home value determination or appraisals required

NONE OF THESE ABOVE GUIDELINES ARE REQUIRED BY THE VA It is the VA mortgage lenders that are hurting veterans while trying to protect themselves.

To the Average Joe reading this blog, this may seem a bit strange, that a mortgage professional would be complaining about such changes. It is true that much of the housing crisis we are suffering from at this point, is due to reckless lending standards to start with. I agree with that. However, VA loans have never allowed a buyer to state his or her income higher that it really was, there was never a NO DOC or NO INCOME loan for a veteran. In addition, veterans have always had to be employed regardless of income or FICO score. What I am trying to portray is that very few, if any veterans ever bought a house that they could not afford. The loans that allowed this or encouraged this sort of reckless lending, were never available to veterans. If you have read my last two posts about streamline refinancing or VA IRRLs, you know how much I encourage loans that home owners can afford but allow them to refinance easily when rates drop. They are the perfect loan for hard financial times accompanied by low interest rates, like we see today. As much as veterans and this country could benefit from low interest rates and refinancing with the VA streamline loan, banks are making it harder and at times impossible to refinance and save money each month, due to the new underwriting guidelines that they have put onto these loans.

True Examples of Unjust Treatment to Veteran Home Owners

Here are some prime examples of this unjust practice being imposed on veterans: Veteran has a 700 FICO score and has never been late on his home payment. When he bought the house he added his wife to the loan even though she was a home maker and did not add any benefit to the home purchase, he simply wanted his wife on the mortgage. Now interest rates for VA loans are at 4.5% and he could save $233 by doing a streamline refinance. However, since the banks are now looking at both borrowers, (the wife’s credit now comes into play) the wife’s FICO score is a 615 (not that bad actually) and due to this score, the veteran cannot take advantage of the lower interest rates and has to stay where he is. Does this sound fair to you? Here is another disgraceful example. Veteran lives in California and has owned his home for 3.5 yrs. The veteran has stable employment with the government and has impeccable credit history. When he bought his house he paid around $400,000 for it and got an interest rate of 6.5%. The veteran recently applied for a refinance and was told he needed an appraisal. Remember the VA does not require this for a streamline refinance, but the bank does. Well almost nobody who purchased a home in California over the past 3 years has the value in the house that they paid for it. This particular veteran was denied the lower interest rate because his home is now only worth $300,000. I find these two examples on a daily basis and find it an outrage. Both of these cases hurt all involved. The veteran is stuck in a higher rate and payment than he should be, the United States government has it’s resources wasted since it is trying to keep rates low for these sort of individuals, yet the banks won’t allow them to take advantage and you the taxpaying citizen also loses because the economy will take longer to recover due to these unfortunate and foolish decisions.

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