In 1965 the Department of Housing and Urban Development
(HUD) was formed. Within HUD operates the
Veterans Administration
(VA), which has the primary responsibility
for administering the government home loan insurance
program. This program allows a first time home buyer who
might otherwise not qualify for a home loan to obtain
one because the risk is removed from the lender by VA who insures the loan for the lender.
The most popular VA home loan program for a first
time home buyer is by far is the 203(b). This
is your standard fixed rate loan for 1-4 family
owner occupied houses and only requires a minimum of
3% from the borrower. This loan also permits 100%
of their money needed to close to be a gift from a relative,
non-profit organization, or government agency.
The main advantage to a VA home loan is that the
credit criteria
for a first time borrower are not as strict as Conventional
Loans sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC).
Someone who may have had a few credit problems or no
traditional
credit should
not have a problem obtaining VA
financing
. Also, VA home loans are assumable, allowing
a person to take over the mortgage without the additional
cost of obtaining a new loan. In addition, the seller
or lender must pay for part of the "traditional"
closing costs (called non-allowable
costs) while a borrower's allowable costs can partially
be wrapped into the loan. The monthly
mortgage insurance premium
is cheaper for an VA loan verses a conventional loan
with 3% down. Finally, VA loans may may require
less income to qualify as they will exceed the Conventional
debt ratios of 28/36% as their standard is 29/41%.
Many people make the mistake and assume that VA
loans are
only available for first time home buyers. This
is not true. VA loans are available to anyone,
whether your first or fifth home and can be used to
purchase a home or refinance a home. If refinancing
a home the current loan DOES NOT have
to be an VA loan.
The greatest disadvantage of VA home loans is that
VA limits the loan size that a borrower can borrower
Please see the link for
VA Loan Limits in
your area. Others may try and convince you that
the VA upfront mortgage insurance premium (MIP) is
a disadvantage. However this amount makes just a very
small increase in the borrower's month
payment and
is partially refundable in certain cases.
There are several notable VA home loan
programs available as characterized
below.
Note- Content
shared from VA and HUD public informational programs
