Fulton County, Indiana

What are Home Loan Guaranties?

VA loan guaranties - to be used for the purchase of homes, condominiums and manufactured for refinancing loans - are made to service members, veterans, reservists and surviving spouses who have not remarried.

VA guarantees part of the total loan, permitting the purchaser to obtain a mortgage with a competitive interest rate, even without a down payment if the lender agrees. VA requires that a down payment be made for the purchase of a manufactured home. VA also requires a down payment for a home for condominium if the purchase price exceeds the reasonable value of the property or the loan has a graduated payment feature. With a VA guaranty, the lender is protected against loss up to the amount of the guaranty if the borrower fails to repay the loan. A VA loan guaranty can be used to: 1. Buy a home. 2. Buy a residential condominium. 3. Build a home. 4. Repair, alter or improve a home. 5. Refinance an existing home loan. 6. Buy a manufactured home with or without a lot. 7. Buy and improve a manufactured home lot. 8. Install a solar heating or cooling system or other weatherization improvements. 9. Purchase and improve a home simultaneously with energy efficient improvements. 10. Refinance an existing VA loan to reduce the interest rate and make energy-efficient improvements. 11. Refinance a manufactured home loan to acquire a lot. Eligibility Applicants must have a good credit rating, have an income sufficient to support mortgage payments, and agree to live in the property. To obtain a VA certificate of eligibility, complete VA Form 26-1880, "Request for Determination of Eligibility and Available Loan Guaranty Entitlement,". Eligibility varies with service. Guaranty amount The amount of the VA guaranty available to an eligible veteran is called the entitlement and may be considered the equivalent of a down payment by lenders. Up to $50,750 in entitlement may be available to veterans purchasing or constructing homes to be financed with a loan of more than $144,000 and to veterans who obtain an Interest Rate Reduction Refinancing Loan of more than $144,000. The amount of entitlement varies with the loan amount. VA does not establish a maximum loan amount. No loan for the acquisition of a home, however, may exceed the reasonable value of the property. A loan for the purpose of refinancing existing mortgage loans or other liens secured on a dwelling is generally limited to 90 percent of the appraised value of the dwelling. A loan to reduce the interest rate on an existing VA-guaranteed loan, however, can be made for an amount equal to the outstanding balance on the old loan plus closing costs, reasonable discount points and energy-efficient improvements. A loan for the purchase of a manufactured home or lot is limited to 95 percent of the amount that would be subject to finance charges. The VA funding fee and up to $6,000 in energy-efficient improvements also may be included in the loan. A veteran who previously obtained a VA loan can use the remaining entitlement for a second purchase. The amount of remaining entitlement is the difference between $36,000 or $50,750 for special loans, and the amount of entitlement used on prior loans. Veterans refinancing an existing VA loan with a new VA loan at a lower interest rate need not have any entitlement available for use. Required occupancy Veterans must certify that they intend to live in the home they are buying or building with a VA guaranty. A veteran who wishes to refinance or improve a home with a VA guaranty also must certify to being in occupancy at the time of application. A spouse may certify occupancy if the buyer is on active duty. In refinancing a VA guaranteed loan solely to reduce the interest rate, veterans need only certify to prior occupancy. Closing costs Payment in cash is required on all home loan closing costs, including title search and recording, hazard insurance premiums, prepaid taxes and a 1 percent origination fee, which may be required by lenders in lieu of certain other costs. In the case of refinancing loans, all such costs may be included in the loan, as long as the total loan does not exceed 90 percent of the reasonable value of the property. Interest Rate Reduction Refinancing Loans may include closing costs and a maximum of 2 discount points. Loans, including refinancing loans, are charged a funding fee by VA, except for loans made to disabled veterans and unremarried surviving spouses of veterans who died as a result of service. The VA funding fee is based on the loan amount and, at the discretion of the veteran and the lender, may be included in the loan. Financing, interest rates and terms Veterans obtain VA-guaranteed loans through the usual lending institutions, including banks, savings and loan associations, building and loan associations, and mortgage loan companies. Veterans may obtain a loan with a fixed interest rate, which may be negotiated with the lender. If the lender charges discount points on the loan, the veteran may negotiate with the seller as to who will pay points or if they will be split between buyer and seller. Points paid by the veteran may not be included in the loan, except that a maximum of 2 points may be included in Interest Rate Reduction Refinancing Loans. The loan may be for as long as 30 years and 32 days. VA does not require that a down payment be made, except in the following instances: 1) a manufactured home or lot loan; 2) a loan with graduated payment features; and 3) to prevent the amount of a loan from exceeding VA's determination of the property's reasonable value. If the sale price exceeds the reasonable value, the veteran must certify that the difference is being paid in cash without supplementary borrowing. A cash down payment of 5 percent of the purchase price is required for manufactured home or lot loans. Repossessed houses VA sells homes that have been acquired after foreclosure of a VA-guaranteed loan. These homes are available to both veterans and nonveterans. Contact local real estate agents for available listings. Safeguards for veterans 1. Homes completed less than a year before purchase with VA financing and inspected during construction by either VA or HUD must meet VA requirements. 2. VA may suspend from the loan program those who take unfair advantage of veteran borrowers or decline to sell a new home or make a loan because of race, color, religion, sex, disability, family status or national origin. 3. The builder of a new home is required to give the purchasing veteran a one-year warranty that the home has been constructed to VA-approved plans and specifications. A similar warranty must be given for new manufactured homes. 4. In cases of new construction completed under VA or HUD inspection, VA may pay or otherwise compensate the veteran borrower for correction of structural defects seriously affecting livability if assistance is requested within four years of a home-loan guaranty. 5. The borrower obtaining a loan may only be charged the fees and other charges prescribed by VA as allowable. 6. The borrower can prepay without penalty the entire loan or any part not less than the amount of one installment or $100. 7. VA encourages holders to extend forbearance if a borrower becomes temporarily unable to meet the terms of the loan.