What is a VA Hybrid ARM Loan?
The VA ARM, often called a “hybrid”, was established to give the flexibility of an ARM along with the stability of a more traditional fixed rate mortgage. Over the past couple of years the term ARM has been given a negative connotation among many consumers when speaking of mortgage loans. In truth the “Option ARM” was the culprit. A VA ARM loan will generally start at rate that is much lower than that of its fixed counterparts. Hybrids keep this low fixed rate for a shorter time, usually between three and five years. After the fixed period has elapsed the VA ARM will adjust to the current market. This adjustment is made with very strict rules governing it. Unlike the pay-option ARM products that helped to collapse the mortgage market, a VA ARM may only adjust once per year as opposed to quarterly. There are also specific caps in place so that the interest rates do not run away on the veteran. For example on a VA ARM the annual adjustment cannot be more than 1% in any given adjustment period, and a VA ARM has a life time cap on adjustment (usually 5-6% above the start rate). With these safeguards in place a hybrid VA ARM is a great option for may veterans.
How does a VA ARM work for me?
Perhaps the most commonly question asked when a veteran in considering a VA ARM is “how does it work”? A VA ARM is a great option for a veteran who is looking to purchase a home with little or no money down at an extremely low rate. Because the VA is willing to guarantee up to 25% of the loan, veterans can avoid making large down-payments. Combined with the very low rates ( often below 4%) and favorable terms the VA ARM has become a very commonly used tool to financial freedom. With the interest savings alone, veterans can pay off other debt and save for the future. For help in obtaining a VA ARM speak with a specialist dealing with VA loans for more details.
Do I qualify for a VA ARM if I have a bankruptcy?
The short answer is Yes. If you are currently in the middle of a Chapter 13 bankruptcy, you must be able to show 12 months of clean payment history and receive written authorization from the bankruptcy trustee to move forward with any VA ARM. For a Chapter 7 bankruptcy the discharge date must be at least 24 months in the past in order to be approved for any VA ARM.
Where did VA ARM loans come from?
In 1944 FDR signed the GI Bill perpetuating the birth of VA Loans. Only with the last decade has the VA ARM been around. By using VA ARM the dream of homeownership became a realization for millions of veterans who were now able to afford mortgage payments at the lower rates offered by the VA ARM. This new government program created the opportunity for veterans to purchase a home with no down payment and did more for the wellbeing of those with a VA ARM than any other program before or since.
Who can get a VA ARM?
A VA ARM can be established by any one of the 25 Million plus men and women who have served faithfully as members of the United States armed forces. Those that are eligible for a VA ARM and other VA loans have served honorably in the armed forces for at least 90 days during war time or 181 continuous days during times of peace. Widows of veterans are eligible to use a VA ARM or other VA loans under some specific guidelines. Those desiring to use their eligibility for a VA ARM must have at least two years of service time accumulated for both officers and enlisted personnel. Members of the National Guard and reserve units may also establish a VA ARM, provided they have met the six-year service requirement.
How much does the VA guarantee?
The maximum guarantee on a VA ARM is $104,250 in most areas of the country. This means that the total amount financed by the VA ARM cannot exceed $417,000. This being said, the VA is only the guarantor on the loan and not the lender itself. Thus, a VA ARM is subject to approval by the individual lenders who may have different requirements for eligibility.
How long do the fixed rates stay fixed on a VA ARM?
Not every VA ARM is the same. The VA ARM can have fixe terms of 12, 36, 60, and in some cases 84 months. The term lengths can vary from lender to lender. This allows the borrower to tailor the loan to meet their specific needs. May active duty officers are not in one duty station for much longer than 3 years thus a 3/1 VA ARM makes sense for them. Others may stay at the same post for 5 years or longer making the 5/1 VA ARM a great choice.
How do I qualify for a VA ARM?
The qualification process for a VA ARM is very straightforward. If you plan on inhabiting the home as your primary place of residence and are a current member of the military or qualified veteran (your DD-214 can provide the necessary information to satisfy this), you qualify for a VA ARM.
For a VA ARM will my credit be pulled?
Yes your credit does matter. Although the Department of Veterans Affairs does not provide guidelines for a VA ARM or other VA loans with regards to credit, the lenders offering the loans generally do. The bright spot is that because rates on a VA ARM are generally lower qualifying for a larger loan becomes easier
What sort of interest rates can I expect on a VA ARM?
In general the rates on a VA ARM are very competitive with other ARM products. A VA ARM can generally be found at the lowest rates, sometimes nearly a full percentage point below their fixed rate cousins. Although, there is no straight forward answer as interest rates are constantly changing and are determined by market forces.
