What is a VA-Guaranteed Loan?

Mortgage company, savings and loan or banks can make VA loans.  The VA guaranty on the loan protects the lender against loss if the mortgage payments are not made. 

This usually encourages lenders to offer more favorable terms to the veteran.

The veteran’s available entitlement will determine the amount of guaranty on the loan.   With the current maximum guaranty, a veteran who has full entitlement available may be able to obtain a VA loan up to $417,000 with no down payment, depending on the borrower’s income level and the appraised value of the property.  Section 501 of Public Law 110-389 provides a temporary increase in maximum guaranty amount of loans closed from January 1, 2009 through December 21, 2011.

 There are places in America that it cost more to live, thus the government has made getting a loan easier in those places.  At least you can for now.  You can check out www.homeloans.va.gov/new.htm to find the higher cost county loan limits. 

VA loans may be used for the following purposes:

1.    Existing homes (which includes townhomes or condominiums)  It must be  a VA-approved development

2.    You can also build a home.

3.    You can buy a home and improve that home within a time frame

4.    You can install energy-related features

5.    Refinance an existing home loan.

6.    You can do a cash-out refinance

7.    An Interest rate Reduction Loan or Streamline

8.    You also can convert an adjustable rate mortgage (ARM) to a fixed rate mortgage

9.    Multiple family units (up to four units) can be bought.  Of course the veteran has to occupy one of the units as his/her residence.

What are the advantages of a VA guaranteed Loan:

1.    No down payment

2.    The maximum amount of the loan can be up to 100% of the value of the property.  VA loans generally do not exceed the Freddie Mac conforming loan limit for a single-family residence.  Which at this time is $417,000, but in Alaska, Hawaii, Guam and the Virgin Islands it’s $625,500.

3.    You have more flexibility of negotiating the interest rates with the lender.

4.    There’s no monthly mortgage insurance premium to pay.  With other kinds of loans, if you owe more than 80% of the loan, they will and do charge a mortgage insurance premium per month.

5.    The Seller is required to pay more of your closing cost.

6.    The property value will be determine by an Appraisal.

7.    30 year mortgages are available.  There are different types of repayment plans.  You’ll need to talk to your lender about the different repayment plans.

8.    The loan is assumable.  The VA will need to approve the assumer’s credit.

9.    No prepay penalty.

10.   The VA offers financial counseling to help the veteran not to lose the home during temporary financial problems.

This is a great time for the VA to take advantage of the 1st time buyer credit.  You’ll need to stay in the home for 3 years, but with no down payments and the tax credit how could you lose.