Basic Elements of a VA-Guaranteed Loan – Chapter 3 Summary
The information in Chapter 3 of the VA Lenders Handbook is something every VA borrower should have. Unfortunately, the Handbook is pretty boring, and it uses jargon and assumes that the reader has a certain level of knowledge already. That’s why we’ve put a lot of effort into making the Handbook an enjoyable and comprehensible read for VA-eligible borrowers. This article can serve as a summary of the information in Chapter 3 so you can decide if you want to read the entire chapter using the link above or read all of the articles we’ve written on Chapter 3. Let’s get started!
Some Numbers to Know
A lot of people want to know what the maximum loan amount one can get a VA loan is. The VA has no specified dollar amount for the “maximum loan”. The maximum loan amount is generally however the reasonable value of the property plus any closing costs that are allowed to be financed. You might run into issues if you’re looking at a million-dollar home in an area where the median home price is $150k, but you also may not. It depends on, and the best way to find out is to ask a loan officer. The next number to worry about is the required down payment. This number is 0. VA loans do not require a down payment. At least, the VA does not require a down payment, but a lender is allowed to require one if they choose. Next is the amount of the VA guaranty. The VA will usually guarantee around 25% of the loan amount, depending on how much the loan is for. If the loan is for a relatively small amount, the guaranty amount may be higher than 25%.
Some Requirements to Know
You should know that the VA requires you to certify that you intend to occupy the home as your primary residence before they will be willing to guarantee your loan. This is called the occupancy requirement and is the case for all VA loan types except for when refinancing with an IRRRL; in the case of an IRRRL, you simply must certify that you previously occupied the property as your primary residence. Also, this portion of the Handbook clarifies that a borrower being VA-eligible does not guarantee that the borrower will be able to obtain a VA loan; the borrower must have satisfactory credit and repayment ability for the loan they are applying for. Lenders are permitted to use deeds of trust, mortgages, or another note form if they choose as long as they contain certain VA-required clauses. Lastly for this section, you will be required to pay a funding fee to the VA to help defray the costs of the VA loan program unless you are exempt. Generally, if you are receiving sufficient disability payments from the VA you will be exempt from the funding fee. The funding fee amount varies based on whether you’re making a down payment and whether this is the first time you’ve used your VA loan benefits or a subsequent use.
Some Information to Know
The VA allows you to pay for discount points on your interest rate so long as the points are reasonable and are not financed into the loan (unless you are refinancing with an IRRRL). Paying discount points is a good way to lower the interest rate you are paying, and since the VA is guaranteeing the loan, they’re interested in any ways they can help you make payments on the loan. The purpose of the VA guaranty is to give lenders an incentive to take on VA borrowers at terms that are better for the borrowers and worse for the lenders. By guaranteeing a portion of the loan, the VA is getting rid of some of the risks of taking on a VA borrower. An IRRRL is the VA’s streamline refinance option and is characterized by not requiring an appraisal or any underwriting. IRRRLs also allow closing costs to be financed into the loan, including two discount points.
Chapter 3 is all about the VA loan program and contains a wealth of valuable information about the program. Most of Chapter 3 is good information for you to have, and it will be worth your time to go through all of our articles on it to get the information.