100% Financing: Focusing on VA

As 100% evaporates, first-time home buyers are left scrambling for down payment funds again in order to buy a homes.  This full scale lending retreat was caused by the perfect storm of declining real estate values, defaulting borrowers, and the attack on seller-funded down payment assistance programs like Nehemiah.

However, you’ll be glad to know that there are a few survivors, and I’ll be covering those in coming posts.  For now let’s take a closer look at one terrific option.

Qualifying for a VA Home Loan

VA loans are available to honorably discharged veterans or those still on active duty in one of the branches of the military.  Here are some highlights:

• 100% purchase financing
• 90% LTV refinances (100% for distressed veterans with subprime mortgages)
• No mortgage insurance
• No reserves required
• No “front end” ratio maximum
• Up to 4% seller credit
• Owner occupied only
• 1 to 4 unit properties
• VA Funding Fee can be financed into the loan, and is waived for disabled Vets
• 30 & 15 yr fixed rate loans available, with more options on the way

The Mysterious VA “Entitlement”

When vets are discharged or reach the end of a tour of duty, they receive a DD214 statement showing their dates of service.  Additionally they will receive a Certificate of Eligibility (COE) showing the amount of their VA “entitlement”.  A lot of veterans I have worked with over the years have lost track of their COEs, but fortunately these can now be ordered on line.

The VA Entitlement issue is confusing, so let’s spend a few minutes on that.  The maximum entitlement shown on the COE is $36,000.   But this figure is out of date.  It represents 25% of the old $144,000 maximum loan amount used a long time ago.  If the vet buys a home today for more than $144,000, there is a “bonus entitlement” of an additional $68,250.  Stay with me here.  The original plus the bonus entitlements total $104,250, and that equals 25% of the $417,000 maximum VA loan amount.

So What Is the Maximum VA Loan Amount?

Actually there isn’t one. That surprises people.  To purchase these VA loans, Ginnie Mae requires that VA guarantee 25% of the loan amount, but the VA will only do that up to a maximum amount of $417,000.   But,  if the veteran wants to buy a home that costs more, she can use her full entitlement and then make up the difference in cash.

For example, let’s say the vet wants to buy a $500k home.  The price multiplied by the 25% required guarantee equals $125k.  The full VA entitlement covers $104,250, so the veteran can make up the $20,750 difference in cash as a down payment.  This is also commonly referred to as a VA Jumbo loan.  That down payment is about 4%, still very low when you consider that there is no mortgage insurance required!

Temporary Higher Loan Amounts for High Cost Counties

For the curious among you, VA has temporarily increased the maximum loan amounts for 2008.   It will cover the entire 25% guarantee of those higher amounts in High Cost Counties.  At some point here soon, we’ll find out about the permanent 2009 loan amounts, so check that out before you go into contract on a property that isn’t closing intil January.

I’ll be covering more VA details later, but stay tuned for highlights of CalVet loans next!

Does a veteran you know need help with VA oir CalVet financing.  Contact me for more details.