Are you 40 or older and reasonably well off? You might be surprised at how well an adjustable rate mortgage (ARM) could work out for you at this stage of life. ARMs are only a small part of the market, but most people are surprised to find out that most of them don’t adjust for five or seven years, meaning this option can make a lot of sense if you don’t plan on being in your home long or for older refinancing homeowners with lots of equity.
Why Consider a VA ARM?
You might be asking “why should I even consider an ARM?” or “Is an ARM safe?” The biggest savings come if you pay off the loan within the five to seven years before the ARM adjusts–effectively turning it into a very short, very low-rate fixed mortgage. That’s attractive if, for example, you plan to move in the next several years or if you want to pay off a big mortgage before you retire.
A surprising number of veterans never really look into their Veterans Affairs (VA) loan guarantee. The VA home mortgage was established for the purchase of homes, condominiums, co-ops, and manufactured homes. The VA guarantees a percentage of the loan, which helps you obtain a no-down payment mortgage at a competitive interest rate.
Some Advantages of Adjustable-rate Mortgages
- Feature lower rates and payments early on in the loan term.
- Allow borrowers to take advantage of falling rates without refinancing.
- Help borrowers save and invest more money.
- Offer a cheap way for borrowers who don’t plan on living in one place for very long to buy a house.
- Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.
- Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates -and their monthly payments fall.
- Someone who has a payment that’s $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.
Are You Eligible for a VA Home Loan?
You may qualify for a guaranteed VA loan if you are:
- A veteran (including Reserve and National Guard members who were called to active duty)
- An active duty service member
- A current Reserve and Guard member (usually after six years of reserve service)
- Certain surviving spouses
- A commissioned Officer of the Public Health Service or National Oceanic and Atmospheric Administration, once discharged.
Generally, in order to receive VA benefits and services the Veteran/service member’s character of discharge or service must be under honorable conditions. However, individuals receiving undesirable, bad conduct, and other types of dishonorable discharges may qualify for VA benefits depending on a determination made by VA.
Your Next Steps
To apply for a VA home mortgage loan, you will need a valid Certificate of Eligibility (COE). There are several ways to obtain your COE:
- You may be able to obtain a COE online through eBenefits at http://www.ebenefits.va.gov.
- If you are unable to obtain your COE through eBenefits, check with your lender. In most cases, your lender will be able to obtain a COE for you using the Automated Certificate of Eligibility (ACE) program.
- You can download VA Form 26-1880, “Request for A Certificate of Eligibility” at http://www.va.gov/vaforms/. Complete it and mail it with proof of military service to the VA Eligibility Center.
For more information on this program, visit http://www.benefits.va.gov/homeloans/.