VA financing is the best mortgage loan program by far for mortgage borrowers. Here are some of the nuances about VA loans that you should know if you’re considering using a VA loan for a purchase or for a refinance…
The US Department of Veterans Affairs guarantees home mortgage loans for eligible military veterans up to the maximum loan limit in the county in which the property is located with no money down 100 percent financing for a purchase or refinance. The beauty of VA loans is that VA loans typically have better interest rates than conforming conventional mortgages and offer 100 percent financing with no monthly mortgage insurance.
The VA does not technically have a loan limit. Fannie Mae and Freddie Mac just recently announced their loan limits increase for 2019. The VA guarantees up to 25 percent of the entitlement that the veteran is otherwise eligible for subsequently allowing the veteran to not have a loan limit. In other words, a veteran can purchase a property with absolutely no loan limit at all however the ability for them to come in with no money down diminishes as the purchase price rises. It’s reasonable for a borrower purchasing a $1.2-million property in an area in which the loan limit is $648,600 would need to bring in approximately $130,000 as a down payment.
When refinancing the same limits and benefits apply. However, know this- when you are doing a VA refinance and the loan being refinanced in not a VA Loan, the loan is coded as cash out refinance. The only loan true VA re-finance that is considered a rate and term refinance is a VA IRRL.
Some other things to be mindful of when getting a VA mortgage:
The VA does not ensure loans they guarantee loans.
VA loans used to be that the seller had to pay for any of the pest clearance. That’s right VA loans whether purchasing, or refinancing require a clear pest report. The seller of the property in a purchase must pay for the actual report for the benefit of the buyer, but the buyer or the seller can pay for the repairs to the property
If the property is on land and is not on city water and is on well water and septic, a water test and a well inspection test is going to be required for a VA mortgage.
VA loans also allow for more flexible and higher debt to income ratios allowing a family to push the envelope so to speak in terms of their borrowing power whereas other mortgages such as conventional are a bit more limited in payments income allowance.
VA financing in community property states requires the lender to pull a copy of the credit report of both spouses and use the debt of both spouses if only one of the spouses is on the mortgage. However, in 2019 there is going to be a change coming allowing the lenders to use the debts of both spouses, but the spouse who is not on the mortgage that spouse’s income can be used to offset their debt while still not required to be on the application.
VA financing will require a shared road maintenance agreement for any borrowers seeking to finance a home located on a shared private road.
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Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.