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VA Guaranteed Home Loans for Veterans
VA LOAN REPAYMENT PLANS
VA will guarantee loans to purchase homes made with the following repayment plans:
Traditional Fixed Payment Mortgage
This type of mortgage loan calls for equal monthly payments for the life or term of the loan.
Each monthly payment reduces a certain portion of the principal owed on the loan and pays interest
accrued to date.
GPM (Graduated Payment Mortgage)
This repayment plan provides for smaller than normal monthly payments for the first few years
(usually 5 years), which gradually increase each year, and then level off after the end of the
"graduation period" to larger than normal payments for the remaining term of the loan. The
reduction in the monthly payment in the early years of the loan is accomplished by delaying
a portion of the interest due on the loan each month and by adding that interest to the
principal balance.
Buydowns
The builder of a new home or seller of an existing home may "buy down" the veteran's mortgage
payments by making a large lump sum payment up front at closing that will be used to supplement
the monthly payments for a certain period, usually 1 to 3 years.
GEM (Growing Equity Mortgage)
This repayment plan provides for a gradual annual increase in the monthly payments with all of
the increase applied to the principal balance. The annual increases in the monthly payment may be
fixed (for example, 3 percent per year) or tied to an appropriate index. The increases to the
monthly payment result in an early payoff of the loan in about 11 to 16 years for a typical
30 year mortgage.
DOWNPAYMENT REQUIREMENTS
Traditional Fixed Payment Mortgage, Buydown Loans, and Growing Equity Mortgage
VA does not require a down payment if the purchase price or cost is not more than the reasonable value
of the property as determined by VA, but the lender may require one. If the purchase price or cost
is more than the reasonable value, the difference must be paid in cash from your own resources.
Graduated Payment Mortgage
The maximum loan amount may not be for more than the reasonable value of the property or the
purchase price, whichever is less. Because the loan balance will be increasing during the first
years of the loans a down payment is required to keep the loan balance from going over the
reasonable value or the purchase price.
VA LOAN INTEREST RATES
The interest rate on VA loans can be negotiated based on prevailing rates in the mortgage
market. Once a loan is made, the interest rate set in the note will stay the same for the
life of the loan.
However, if interest rates go down, and you still own and occupy (or previously occupied) the
property securing a previous VA loan, you may apply for a new VA loan to refinance the previous
loan at a lower interest rate without using any additional entitlement.
VA LOAN CLOSING COSTS
The cost of obtaining any mortgage can be quite a lot. VA regulates those closing costs that a
veteran may be charged in connection with closing a VA loan. No commission or brokerage fees may be
charged to you for obtaining a VA loan. However, you may pay reasonable closing costs to the lender
in connection with a VA guaranteed loan.
Although some additional costs are unique to certain localities, the closing costs generally include
VA appraisal, credit report, survey, title evidence, recording fees, a 1 percent loan origination fee,
and discount points. The closing costs and origination charge may not be included in the loan, except
in VA refinancing loans.
In addition to negotiating the interest rate with the lender, veterans may negotiate the payment
of discount points and other closing costs with the seller. Often, sellers will consider paying
some or all of the discount points required by the lender in order to complete the sale. This
can have a big impact on the amount of cash you must pay out of pocket in order to complete
the purchase. If the seller will not consider paving points, the veteran may be able to negotiate
an interest rate with the lender which is sufficient to avoid the need to include any discount
points in the transaction.
VA LOAN FUNDING FEE
A VA funding fee of 2.15 percent of the loan amount (2.40 percent for reservists) is also payable
at the time of loan closing. This fee may be included in the loan and paid from the loan proceeds.
The funding fee does not have to be paid by veterans receiving VA compensation for service-connected
disabilities, or who but for the receipt of retirement pay would be entitled to receive compensation
for service-connected disabilities, or surviving spouses of veterans who died in service or from a
service-connected disability. If the veteran makes a downpayment of at least 5 percent, but less
than 10 percent of the purchase price of the property, the funding fee is reduced to 1.50 percent
of the loan amount (1.75 percent for reservists). If the veteran makes a downpayment of at least
10 percent, the funding fee is reduced to 1.25 percent of the loan amount (1.50 percent for
reservists). If a veteran who has previously obtained a VA home loan obtains another loan
with less than a 5 percent downpayment, the funding fee is 3.30 percent of the loan amount.
With a downpayment of at least 5 percent, the funding fee is reduced to the percentages shown
above for downpayments of at least 5 percent, but less than 10 percent, and for down payments
of more than 10 percent.
A more detailed discussion of closing costs may be found in VA Pamphlet 26-6.
FREQUENTLY ASKED QUESTION # 10 [ -more VA Loan questions- ]
- - - - - -
Q: Adjustable Rates - Do I have to take a fixed-rate VA loan?
A: Veterans who shop around will learn it's possible to get a fixed rate loan, negotiated with the lender of your choice. Another option? The adjustable rate loan, where interest may be adjusted one percent annually, up to five percent over the duration of the loan period. Which to choose? No matter which way you think is best, do your homework, shop around and get the best rate possible. Some make the mistake of taking the first offer that sounds fair, but don't be intimidated by the process. You may be eager to get the "hard part" over with and get into a home. Take some time to research the biggest purchase of your life! When in doubt, consult an expert, a legal advisor or a trusted friend in the real estate business. The more research you do, the better you'll feel at closing time. The VA is in the business of loan guaranty, but the choice of which loan to take is strictly up to you. It's also a good idea to look for businesses who make a habit of cultivating customers who are veterans--you may find their expertise in VA matters quite valuable to reduce unnecessary waiting times on paperwork.
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