If you are interested in VA mortgage loans, you can obtain a VA loan certificate of eligibility by going online to http://www.benefits.va.gov/homeloans/docs/veteran_registration_coe.pdf. You can also use the VA home loan calculator to help determine how much you will be able to borrow.
Once your eligibility for a VA mortgage or VA streamline mortgage in regard to income or credit has been determined, you will actually receive your VA home loan from a private financial institution, and the VA will “stand behind” your lender. This means that if something unforeseen happens and you find that you are unable to make your monthly payments any longer, your lending institution can go to the VA to be covered for any losses they have incurred. As a rule, that is where the VA’s responsibility ends, the lender takes things from there, and the VA rarely has any further involvement in the process of approving the loan.
These are some of the benefits of the VA home loan program:
- If the sales price isn’t greater than the appraised value of the home, no down payment will be required.
- You will not be expected to purchase private mortgage insurance, and VA loan guidelines limit the amount you will have to pay for closing costs as well.
- It is possible that the seller will pay the closing costs, which is something to keep in mind when the time comes to negotiate the sales price and close the deal.
- If you are able to pay off your loan ahead of time, the lender cannot charge you a penalty fee.
Here are some other things you should also know about VA loans:
- This benefit is not limited to first-time homebuyers, and it can also be used to refinance a loan if VA mortgage rates indicate that would be wise decision to make.
- It can also be used more than once.
- If the individual assuming the loan is considered to be credit-worthy, a VA-backed loan is also assumable.
When your lending institution is determining how much debt you can assume, it will use one of these methods:
- With the “residual income calculation” method, your financial institution will calculate your normal housing expenses, taxes and other debts, including credit card payments and car loans.
- With the debt-to-income-ratio” method, VA rules require the calculation of the ratio of your combined debt to your income, and this has its limitations.
Note that a lender approved by the VA is the most reliable source for determining the size of the loan you qualify for, considering the amount and stability of your income, your credit rating, and other “compensating factors.”