VA-guaranteed financing is a benefit which Congress intended eligible veterans should have. If you are a veteran home buyer or know of one, it makes sense to look into the VA loan program as a good way to finance a home purchase. Before arranging for a new mortgage to finance a home purchase, veterans should consider some of the other advantages of VA home loans:
- Most important consideration, no down payment is required in most cases.
- Loan maximum may be up to 100 percent of the VA-established reasonable value of the property. Due to secondary market requirements, however, loans may not exceed the current conforming loan limit, or exceed the loan limits published yearly by VA. Those limits are available at http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp.
- Flexibility of negotiating interest rates with the lender.
- No monthly mortgage insurance premium to pay.
- Limitation on buyer's closing costs.
- An appraisal, which informs the buyer of estimated property value.
- Thirty-year loans with a choice of repayment plans. Note: not all repayment plans may be available, check with your lender for the repayment plans that are currently offered.
- Traditional fixed payment: (constant principal and interest: increases or decreases may be expected in property taxes and homeowner's insurance coverage);
- Graduated Payment Mortgage-GPM (low initial payments which gradually rise to a level payment starting in the sixth year); and in some areas,
- Growing Equity Mortgages-GEMs (gradually increasing payments with all of the increase applied to principal, resulting in an early payoff of the loan).
- Hybrid ARMs: VA is authorized to guarantee hybrid ARM loans where the initial rate remains fixed for at least 3 years. The initial adjustment can be as much as 2 percent if the fixed rate period is 5 or more years. Annual adjustments thereafter are limited to 1 percent if the fixed rate period is less than 5 years and 2 percent if the fixed rate period is 5 or more years. If the fixed rate period is less than 5 years, the initial adjustment is limited to 1 percent and the annual cap to 5 percentage points.
- Traditional ARM loans: VA can also guarantee traditional 1-year ARM loans where the rate is adjusted annually. Annual adjustments are limited to 1 percent and the maximum interest rate increase over the life of the loan is limited to 5 percentage points.
- New homes, which are appraised before or during construction, are inspected to help ensure compliance with the plans and specifications, used for the appraisal and with VA minimum property requirements. All new houses, regardless of when appraised, are covered by either a 1-year builder's warranty or a 10-year insured protection plan.
- An assumable mortgage, subject to VA approval of the assumer's credit.
- Right to prepay loan without penalty.
- VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties.
Source: VA Home Loans – Buying Process, http://www.benefits.va.gov/homeloans/purchaseco_buy_process.asp