What is a VA Hybrid ARM Loan?
The VA ARM, often called a “hybrid”, is designed 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 a rate that is much lower than a fixed rate. 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. 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 lifetime cap on adjustment (usually 5-6% above the starting rate). With these safeguards in place a hybrid VA ARM is a great option for many veterans.
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 one of our VA loan specialists.
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.
In 1944 FDR signed the GI Bill, instigating the birth of VA Loans. The VA ARM, however, has only been around for the last decade. VA ARM loans further the goal of opening homeownership to as many veterans as possible. The VA ARM provides the ability to bypass a down payment and still get very low interest rates. VA ARM loans were born of the desire to help our nation’s veterans get the homes they need at prices they can afford.
VA ARMS can be opened 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 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. For those wishing to use their eligibility for VA loans, they must have at least two years of service time accumulated for both officers and enlisted personnel. Widows of veterans are also eligible to use VA ARMs under some specific guidelines. Members of the National Guard and reserve units may also establish VA ARMs, but have a six-year service requirement that must be met first.
The maximum guarantee on VA ARMs is $104,250 in most areas of the country. Since the VA will guarantee up to 25% of a VA ARM, that means that when looking into VA ARMs the veteran should be considering a house that is valued at no more than $417,000 unless they reside in a county where the loan limits are higher. For example, the county loan limits in Alexandria, VA are $825,000. That being said, the VA is only the guarantor on the loan and not the lender itself. Thus, VA loans are subject to approval by the individual lenders who may have different requirements for eligibility. In recent months many of the banks and lending institutions that have previously lent money for VA loans are now refusing to do so, or have altered their internal guidelines such that they make approval more complicated, increasing the need for licensed and certified loan officers who focus on VA loans.
Not every VA ARM is the same. The VA ARM can have fixed 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. Many 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.
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 a qualified veteran (your DD-214 can provide the necessary information to satisfy this), you qualify for a VA ARM.
In general the rates on a VA ARM are very competitive with other ARM products. A VA ARM can usually be found at the lowest rates, sometimes nearly a full percentage point below their fixed rate cousins. Although, since market rates are constantly changing, it becomes impossible to say exactly what interest rate you could expect from a VA ARM.
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