FAQ
Popular Questions
Interest rates are lower now than they were when I got my VA Home Loan. Since it is under the VA Loan guaranty program, am I just stuck?
The VA home loan guaranty program recognizes that there are cases where refinancing an existing loan not only saves the home owner money, it may mean the difference between being able to make a payment and being forced to give up your home. The Interest Rate Reduction Refinancing Loan (IRRRL) is designed to allow you to take advantage of reduced interest rates or restructure a loan from an adjustable rate mortgage (ARM) to a fixed rate. There are a few facts and guidelines you need to be aware of before you decide to refinance your VA Loan.
Show the Proper Interest
When applying for an IRRRL – sometimes referred to as a “Streamline” or a “VA to VA” loan – you need to understand the interest rate comparisons. Unless you are refinancing an adjustable rate mortgage, the interest rate must decrease on the new mortgage. If you are converting an ARM to a fixed rate veteran home loan, the interest rate may increase. The advantage of this type of refinancing is that your interest rate does not fluctuate.
Know the Rules
Unlike a traditional VA home loan, no appraisal or credit underwriting package is required by VA. However, lenders may require an appraisal and credit report anyway. Likewise, a certificate of eligibility is not required, but the property you are refinancing must have been purchased using your entitlement. If your lender requests confirmation, they may use the e-mail confirmation procedure for interest rate reduction refinance. The new loan can structured with “no money out of pocket” by including all costs associated with the IRRRL in the new loan or by setting the new loan interest rate high enough to enable the lender to pay the costs. However, you may not receive any cash from the loan proceeds.
Make sure that the items that you choose to roll into the loan amount do not cause the loan to exceed the appraised value of the home. This could result in your losing any advantage you might gain from refinancing. You must also beware of refinancing a 30 year note for 15 years. While you will save interest over the life of the note, you need to make sure that the payments do not increase to the point that you can no longer afford the payments.
Is it true that a VA Home Loan is not assumable? I want to sell my house and buy another one, but I have heard that a VA loan cannot be assumed unless it is by another veteran with entitlement money left.
As is the case with any myth whether it concerns VA Home Loans or any other topic, you can usually trace it back to an element of truth. The assumable VA Loan is a good example of this phenomenon. In an attempt to get all the facts out, the explanation of this type of transaction has created as much confusion as it has understanding.
Make no Assumptions about Assumption
The key to selling your VA Loan property on an assumption note is to check the rules. In the Q & A section of the VA home loan Guaranty section on their web site (http://www.homeloans.va.gov/faqpstln.htm) the question is asked, “Does having a VA loan limit a veteran’s right or ability to sell the property?” The official answer to the question is, “No. A veteran may sell the property to a veteran or non-veteran at any time. However, if the loan was closed after March 1, 1988, and it will be assumed, the qualifications of the assumer must be reviewed and approved by the lender or VA.” You can sell your house on an assumable note.
What’s the Punch Line?
You need to understand that, while you can sell your VA Secured Loan to anyone who is approved by the VA, you will not be able to buy another house until that loan is totally paid off – unless the person assuming the loan is also a veteran who substitutes his or her entitlement for that of the seller. You can get a release of liability for the loan, but your entitlement will not be restored unless it is replaced by another or the loan is totally paid off.
I am a veteran, so I automatically get my VA Home Loan when I apply – right?
This is a common misconception among veterans and the general population. It stems from the fact that many people think that the Veterans Administration is the lender for their VA Loan. In truth, the VA is a guarantor for up to 25% of the loan, but they are not in the business of making veterans home loans. Their role in the process is to verify that you have the entitlement necessary to receive the guaranty – not the loan.
Loan Applications
Once you have your Certificate of Entitlement from the VA, you will go through the same credit evaluation that anyone else goes through, so it would be in your best interest to do a little research before applying for a loan. Here are just a few of the items to check:
• Debt-to-income ratio – This is simply a comparison of what you earn to what you owe. If the ratio of your debt to the amount of money you bring in is too high, it will make a loan more difficult to secure.
• credit history – If you have been slow to pay, have had judgments filed against you for failure to pay or defaulted on other loans, it will affect your borrowing power.
• Bankruptcy – Any bankruptcy that has not been discharged for over two years will be a negative factor in your loan evaluation.
Don’t lose heart! While these are problems for your lender, they can be mitigated. Here are some factors that will help you offset some of the negatives:
• Conservative use of consumer credit
• Minimal consumer debt
• Long-term employment
• Significant liquid assets
The concept of the VA home loan originated prior to the Revolutionary War.
Long before there was a United States of America, there were soldiers fighting to protect their way of life in what is now America. As far back as 1636 in the Plymouth colonies, laws were enacted to provide for the care of those who fought the Indians. These early “benefits” were limited to pensions for soldiers who were disabled as a result of their actions in defense of the colonials, and most of the colonies adopted similar legislation.
This trend continued up to and including the Revolutionary war. Among the early acts of the Continental Congress in 1776 was a law that provided half pay for life for any veteran who lost a limb or suffered some similar disability. While it is true that the legislation was a recruiting tool to boost enlistments and curtail desertions, it still set the stage for what we know now as the G. I. Bill of Rights. This action was also a precursor for another tradition in federal legislation. While the Continental Congress enacted the law, they passed the responsibility for funding and enforcement down to the newly formed states. The more things change, the more they stay the same.
While the pension act was less than a resounding success when it came to the soldiers collecting their money, it did bring national focus on the responsibility of our government for those who serve in harms way. Some time after the end of the Revolutionary War, Congress began to make grants of public lands to those who had served to the end of the war.
We have come a long way since we first began asking citizens to take on the role of soldiers in defence of our Republic. With each war we have recognized that the needs of our armies must keep up with the realities of the world we live in. The road to the system we now have under the auspices of the Department of Veterans Affairs has been a long and winding one. We have gone from disability pensions to a myriad of benefits – including the availability of VA Loans for houses and land.
“Just bring us your mortgage and we will refinance it for pennies on the dollar.” We have all heard these claims made on television commercials and infomercials. There are so many types of loans out there today that it is hard to decide what kind of loan you need. If you believe what you hear from the television commercials, there are loans to be had at percentage points below the standard rate. To top it all off, many of them make it sound like there is no qualifying to go through. If that is the case, why would I get a VA Loan?
Guaranty
First of all, the Veterans Administration does not loan money for purchasing a home. The VA functions more like an insurance agent in this case. What they provide to veterans is the backing of the Government of the United States on the loans that traditional lenders offer. In other words, they guarantee lenders that they will receive up to the entitlement amount in the event of default. It is more of an enticement than it is a loan.
No Down Payment!
In most cases, veterans taking advantage of a VA Loan will not have to put up any money for a down payment. We all know that this can be a huge advantage when it comes time to close on your loan. As is always the case, if you can put up some money for a down payment, you will pay less over the life of the loan because you have reduced the principal.
PMI – Private Mortgage Insurance
Just when you think you know how much your monthly payments on your new home are going to be, you find another $40 – $50 – or even $60 added in. What in the world has happened? You have been introduced into the world of private mortgage insurance. Lenders do what they can to protect their investment by requiring you to take out an insurance policy on your loan. You don’t have to worry about this “hidden” cost on a VA home loan because the Veteran’s Administration is the guarantor for the loan.
Why VA?
A guaranteed loan with no down payment and no PMI fees – what’s not to like?