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Advantages to Using VA's Home Loan Program

VA's Home Loan Program is for veterans and active duty military personnel (referred to as veterans throughout the rest of the document) and certain members of the reserves and National Guard. VA's program provides an excellent product and benefit for those individuals who have served or are serving to protect our families and our nation, as well as giving them a form of financing that will allow real estate professionals to sell more homes.

For those who are unfamiliar with the program, there are several advantages to using VA's Home Loan Program. The VA allows a veteran who qualifies income and credit-wise to purchase a primary residence without putting money down towards the sales price, as long as the sales price does not exceed the appraised value. Veterans do, however, need money towards closing costs and the earnest money deposit, which the seller generally requires when a sales contract is signed. The seller may pay closing costs, which is an item to consider when the sales price is being negotiated.

Other benefits of using VA's program (other than the 1000f0 financing of the sales price) include:
  • Loans are assumable, provided the assumed is qualified.
  • VA limits veteran's closing costs.
  • Additional assistance is offered by VA should veterans have problems making their home loan payments in the future.
  • Prepayment of the loan without a penalty.

Here are some quick facts you may find useful concerning purchase transactions:

  • VA does not have a maximum loan amount. However, lenders do sell loans
    on the secondary mortgage market, so they will generally limit loans to $417,000 ($625,500 in Hawaii, Guam, Alaska and U.S. Virgin Islands) with no down payment. With a down payment, loans may exceed these amounts.
  • The veteran does have to qualify income and credit wise.
  • The veteran does have to occupy the home as their primary residence.
  • The veteran does not have to be a first time homebuyer and may reuse his/her benefit.
  • The lender, not VA, sets the interest rate and discount points, so they may vary from lender to lender.
  • There is no private mortgage insurance, but VA does charge an up front VA funding fee, which may be financed. The exception to this is that if a veteran is in receipt of VA service connect disability payments each month, he or she does not have to pay a VA funding fee.
  • The seller can pay for closing costs. There is a requirement that seller concessions do not exceed 4%, but only certain items are considered as part of the concession; i.e., payment of pre-paids, VA funding fee, payoff of credit balances or judgments on behalf of the veteran, funds for temporary buy downs (not discount points).
  • The veteran is not allowed to pay for the wood destroying insect (termite) report; the seller generally pays it.
  • VA does not approve the majority of loans. The majority of transactions are handled directly by the lender with little VA intervention.

How much can the veteran afford (and other important factors)?
Please note that VA uses two methods for qualification purposes. The primary method of evaluating a veteran's income is the residual income method. Under this method, the
underwriter determines that a veteran has sufficient income to cover day-to-day living
expenses after paying housing expenses, taxes, and other debts such as car payments and credit card payments. VA also uses a debt-to-income ratio method like many programs. However, VA uses only one ratio, which is the ratio of total debt (both housing and other debt) to income.

Important: This is provided for informational purposes only. A VA approved lender is the best resource to see how large a VA loan the veteran truly qualifies for. The lender will look at income (amount and stability), credit and compensating factors involved when rendering a decision. VA also allows lenders to use certain approved automated underwriting systems.


*Information provided is strictly general information in nature. For detailed info please refer to the U.S. Department of Government Affairs.


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