What is a VA Mortgage loan?
A VA mortgage loan is a mortgage that is available to eligible American veterans or their surviving spouse provided that they have not remarried. The U.S. Department of Veterans Affairs, more commonly referred to as the VA, does not issue mortgage loans itself, but rather approves lenders to issue mortgage loans that are underwritten based on VA guidelines. Mortgage loans that are underwritten to these guidelines are then guaranteed against potential loss by the VA.
What are the benefits of VA Mortgage?
- No down payment requirement; 100% financing available
- No monthly mortgage insurance
- No pre-payment penalty
- Gift funds are allowed
- Shorter seasoning period following a foreclosure (3 years) than conventional mortgage loans (7 years)
- Shorter seasoning period following a short sale (3 years) than a conventional mortgage in most instances. Conventional financing will allow a new transaction 2 years after a short sale if the new purchase is at 80% or less LTV. If the LTV is 90% or less the seasoning period is 4 years. If the LTV is more than 90%, the Conventional seasoning period is 7 years.
- Shorter seasoning period following a Chapter 7 Bankruptcy (2 years) than a Conventional mortgage loan (4 years)
- Shorter seasoning period following a Chapter 13 Bankruptcy than a Conventional mortgage loan provided that:
- One year of the payout period agreed to in the Bankruptcy settlement has elapsed and
- The borrower’s payment performance has been satisfactory and all required payments have been on time
- The borrower receives written permission from the court to enter into a mortgage transaction
- Typically interest rates are lower than those on conventional mortgage loans
- Single Family Residences (SFR), 2-4 Family homes, and condos are all eligible property types
- A variety of amortization options are available including 30 year fixed rate, 15 year fixed rate, and some ARM’s
- Non-occupant co-borrowers are allowed
- No maximum income limits
What is the VA funding fee?
The VA funding fee is an up-front fee that is charged by the VA in order for them to guarantee the mortgage loan. The funding fee varies based on a few different factors. Current VA funding fees are shown in the table below.
|Type of Veteran||Down Payment||% for first time use||% for subsequent use|
|Regular Military||5% or more||1.50%||1.50%|
|Regular Military||10% or more||1.25%||1.25%|
|Reserves/National Guard||5% or more||1.75%||1.75%|
|Reserves/National Guard||10% or more||1.50%||1.50%|
*The higher subsequent use fee does not apply to if the Veteran’s only prior use of entitlement was for a manufactured home loan.
Allowable sources of VA down payment
VA mortgage loans do not require any down payment but in the event that a VA borrower would like to put money down, VA loans offer a variety of options regarding the source of the down payment. Acceptable sources include personal checking/savings, gift funds from a family member, or a grant from a local or state down payment assistance program.
Can I use a VA mortgage loan to purchase an investment property?
VA mortgage loans are only available to finance a home which you intend to occupy as your primary residence with one exception. If you were to purchase a 2-4 plex with VA financing with the intention of using one of the units as your primary residence, you could then rent out the other units in the building if you wish.
What is the maximum loan amount for a VA mortgage loan?
Do VA mortgage loans require mortgage insurance?
No, there is no mortgage insurance requirement on VA mortgage loans.
I’ve already purchased a VA loan using my VA entitlement, can I purchase another?
The key component of a VA backed mortgage is the VA entitlement which is a specific dollar amount which the VA pledges to repay on your home mortgage in the event that you default.
If you are VA eligible and have never utilized your VA benefit, your VA certificate of eligibility would indicate that you have 100% of your entitlement available to you. If you had previously used a VA mortgage loan to purchase a home you may have some or none of your entitlement remaining which would require you to apply for a restoration of entitlement in order to get a new VA mortgage loan.
How do I restore my VA entitlement?
Potential VA borrowers may apply for restoration of entitlement once their prior VA loan has been paid in full and the property has been sold. The VA mortgage loan is a lifetime benefit which can be re-used over and over again provided that any previous VA mortgage loan(s) has been paid in full and that the property purchased with the VA mortgage loan has been sold.
Are there any exceptions to this “must sell” rule?
There is a one-time exception which will allow a VA borrower to keep a home financed by a VA mortgage loan while utilizing your VA benefit to purchase another home. However, any future attempts to seek restoration of entitlement will require disposition of all property covered by prior VA mortgage loans.
Once my VA loan is paid in full can I turn my property into a rental?
There are no rules regarding property disposition once a VA mortgage loan has been paid in full.
I paid my VA loan in full and sold the property, but my certificate of eligibility reads “Paid in full, no restoration.”
This verbiage just indicates that the VA has not received the information regarding the sale of your property. Your loan officer can help direct you to a specific VA form which you can use to advise the VA of the disposition of the property in question in order to prepare you for restoration of entitlement.