Pre-Loan Frequently Asked
Questions
General questions about VA loans
that may arise BEFORE you get one
Q: What is a VA Guaranteed
Home Loan?
A: VA guaranteed loans are made by private
lenders, such as banks, savings & loans, or mortgage
companies to eligible veterans for the purchase of a
home which must be for their own personal occupancy.
The guaranty means the lender is protected against
loss if you or a later owner fail to repay the loan.
The guaranty replaces the protection the lender
normally receives by requiring a down payment
allowing you to obtain favorable financing terms.
Q: What is pre-purchase counseling and why is
it helpful?
A: Pre-purchase counseling gives a person
information on (1) the process of buying a home, (2)
the key players in the home buying process, and (3)
debt management. The goal is to create a more well
informed homebuyer. While VA does not require such
counseling, we strongly recommend it. There is
usually no charge for the housing counseling. An
excellent online source of information for first
time homebuyers is provided by
Ginnie Mae.
To locate a housing counseling office call
(800) 569-4287. or visit HUDs
website.
The Department of Housing and Urban Development
(HUD) maintains both the phone number and
website.
Q: Does my entitlement guarantee that I will
get a home loan?
A: No, VA cannot compel a lender to make a
loan that would violate their lender policies.
Lenders must also comply with VA income and credit
standards. If a lender is unwilling to make a loan
to you, we can only suggest that you try other
lenders.
Q: How much is my entitlement?
A: Your basic entitlement is $36,000.
For loans in excess of $144,000 to purchase or
construct a home, additional entitlement up to an
amount equal to 25 percent of the Freddie Mac
conforming loan limit for a single family home may
be available. This loan limit can change
yearly. The conforming loan limit for 2008 is
$417,000 ($625,500 for Hawaii, Alaska, Guam and U.S.
Virgin Islands). This means that qualified
veterans could get a no down payment purchase loan
for those amounts.
Q: How do I get a Certificate of Eligibility?
A: ACE (automated certificate
of eligibility): It may be possible to obtain a
Certificate of Eligibility from your lender. Most
lenders have access to the ACE system. This Internet
based application can establish eligibility and
issue an online Certificate of Eligibility in a
matter of seconds. Not all cases can be processed
through ACE - only those for which VA has sufficient
data in our records. However, veterans are
encouraged to ask their lenders about this method of
obtaining a certificate.
You can apply for a Certificate of Eligibility by
submitting a completed
VA Form
26-1880, Request For
A Certificate of Eligibility , to the
Winston-Salem
Eligibility Center, along with proof of military service. In
some cases it may be possible for VA to establish
eligibility without your proof of service. However,
to avoid any possible delays, it's best to provide
such evidence.
Q: How do I obtain a VA Home Loan?
A: Here are the steps:
- Select a home and discuss the
purchase with the seller or selling agent. Sign
a purchase contract conditioned on approval of
your VA home loan.
- Select a lender, present them
with your Certificate of Eligibility and
complete a loan application.
- The lender will develop all
credit and income information. They will also
request VA to assign a licensed appraiser to
determine the reasonable value for the property.
A Certificate of Reasonable Value will be
issued. Note: You may be required to pay
for the credit report and appraisal unless the
seller agrees to pay.
- The lender will let you know
the decision on the loan. You should be approved
if the established value and your credit and
income are acceptable.
- You (and spouse) attend the
loan closing. The lender or closing attorney
will explain the loan terms and requirements as
well as where and how to make the monthly
payments. Sign the note, mortgage, and other
related papers.
- The loan is sent to VA for
guaranty. Your Certificate of Eligibility is
annotated to reflect the use of entitlement and
returned to you.
Q: What are the benefits of a
VA home loan?
A: There are many benefits of a VA Home loan:
- Equal opportunity.
- No down payment (unless
required by the lender or the purchase price is
more than the reasonable value of the property).
- Buyer informed of reasonable
value.
- Negotiable interest rate.
- Ability to finance the VA
funding fee (plus reduced funding fees with a
down payment of at least 5% and exemption for
veterans receiving VA compensation).
- Closing costs are comparable
with other financing types (and may be lower).
- No mortgage insurance
premiums.
- An assumable mortgage.
- Right to prepay without
penalty.
- For homes inspected by VA
during construction, a warranty from builder and
assistance from VA to obtain cooperation of
builder.
- VA assistance to veteran
borrowers in default due to temporary financial
difficulty.
Q: What can VA not do?
A: Guarantee that a home is free of defects.
VA guarantees only the loan. It is your
responsibility to assure that you are satisfied with
the property being purchased. The VA appraisal is
not intended to be an "inspection" of the property.
You should seek expert advice (a qualified
residential inspection service), as necessary,
BEFORE legally committing to a purchase agreement.
If you have a home built, VA
cannot compel the builder to correct construction
defects although VA does have the authority to
suspend a builder from further participation in the
home loan program.
VA cannot guarantee that you are
making a good investment. VA cannot provide
you with legal services.
Q: Is a guaranteed loan a
gift?
A: No, it must be repaid, just as you must
repay any money you borrow. If you fail to make the
payments you agreed to make, you may lose your home
through foreclosure.
Q: Can I get a loan for a home outside of the
United States?
A: Unfortunately, the law
only allows VA to guarantee loans on property in the
United States, its territories, or possessions.
Q: Can I get a VA loan if I have had a
bankruptcy in the last few years?
A: The fact you and/or your
spouse have been adjudicated bankrupt does not in
itself disqualify you for a VA home loan. The
following rules apply:
- If the bankruptcy was
discharged more than 2 years ago, it may
be disregarded
- If the bankruptcy was
discharged within the last 1 to 2 years, it is
probably not possible to determine that you
and/or your spouse are a satisfactory credit
risk unless both of the following
requirements are met:
- you and/or your spouse
have reestablished satisfactory credit,
and
- the bankruptcy was caused
by circumstances beyond your and/or your
spouses control (such as unemployment,
medical bills, etc.)
- If the bankruptcy was
discharged within the past 12 months, it
will not generally be possible to
determine that you and/or your spouse are
satisfactory credit risks.
Q: Why do I have to pay a
fee for a VA home loan? Since I paid a fee for my
first loan, why is there a larger fee for my second
loan?
A: The VA funding fee is
required by law. The fee is intended to enable the
veteran who obtains a VA home loan to contribute
toward the cost of this benefit, and thereby reduce
the cost to taxpayers. The funding fee for second
time users who do not make a down payment is slightly
higher. The idea of a higher fee for second time use
is based on the fact that these veterans have
already had a chance to use the benefit once, and
also that prior users have had time to accumulate
equity or save money towards a down payment. Second
time users who make a down payment of at least 5
percent pay a reduced funding fee of 1.5 percent,
the same as first time users making the same
down payment. For a 10 percent down payment, the fee
drops to 1.25 percent. The effect of the funding fee
on a veteran's financial situation is minimized
since the fee may be financed in the loan. National
Guard and Reservist veterans pay a slightly higher
funding fee percentage. To determine the exact
funding fee percentage, please review the
funding
fee table.
Q: I want to buy a house with a VA loan. Do I
need to occupy the property?
A: The law requires that
you certify that you intend to occupy the property
as your home. This requirement is considered
satisfied if you actually intend to occupy the
property as your home and in fact so occupy it when
the loan is closed or within a reasonable time
afterward.
Q: I am a single veteran stationed overseas
and want to buy a home in my home town. My friends
who are married can do this with their spouses
occupying the property in their place, but VA says I
can't do this with my parents or other relatives
occupying on my behalf. Isn't this discrimination
against single veterans?
A: The law specifically
provides that occupancy by the veteran's spouse
satisfies the personal occupancy requirement. The
law makes no provision for occupancy by any other
relatives as a substitute for personal occupancy by
the veteran.
Q: May a veteran join with a non veteran who
is not his or her spouse in obtaining a VA loan?
A: Yes, but the guaranty is
based only on the veteran's portion of the loan. The
guaranty cannot cover the nonveteran's part of the
loan. Consult lenders to determine whether they
would be willing to accept applications for joint
loans of this type. Lenders that are willing to make
these types of loans will likely require a
down payment to cover risk on the unguaranteed,
nonveteran's portion of the loan. Unlike other
loans, the lender must submit joint loans to VA for
approval before they are made.
Both incomes can be used to qualify for the loan.
However, the veteran's income must be sufficient to
repay at least that portion of the loan related to
the veteran's interest in (portion of) the property
and the nonveteran's income must be adequate to
cover the rest.
Q: If a veteran dies before the loan is paid
off, will the VA guaranty pay off the balance of the
loan?
A: No. The surviving spouse
or other co-borrower must continue to make the
payments. If there is no CO-borrower, the loan
becomes the obligation of the veteran's estate.
Mortgage life insurance is available but must be
purchased from private insurance sources.
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