What is a VA Loan? (continued)
Note that there are reqequirements for loan approval. To obtain a VA loan, the law requires that:
- The applicant must be an eligible veteran who has available entitlement.
- The loan must be for an eligible purpose.
- The veteran must occupy or intend to occupy the property as a home within a reasonable period of time after closing the loan.
- The veteran must be a satisfactory credit risk.
- The income of the veteran and spouse, if any, must be shown to be stable and sufficient to meet the mortgage payments, cover the costs of owning a home, take care of other obligations and expenses, and have enough left over for family support.
- An experienced mortgage lender will be able to discuss specific income and other qualifying requirements.
Costs of Obtaining a VA Loan
1. Funding Fee. A basic funding fee of 2.0 percent must be paid to VA by all but certain exempt veterans. A down payment of 5 percent or more will reduce the fee to 1.5 percent and a 10 percent downpayment will reduce it to 1.25 percent. A funding fee of 2.75 percent must be paid by all eligible Reserve/National Guard individuals. A down payment of 5 percent or more will reduce the fee to 2.25 percent and a 10 percent downpayment will reduce it to 2.0 percent. The funding fee for loans to refinance an existing VA home loan with a new VA home loan to lower the existing interest rate is 0.5 percent. Veterans who are using entitlement for a second or subsequent time who do not make a downpayment of at least 5 percent are charged a funding fee of 3 percent. NOTE: For all VA home loans, the funding fee may be paid in cash or it may be included in the loan.
2. Other Closing Costs. Reasonable closing costs may be charged by the lender. These costs may not be included in the loan. The following items may be paid by the veteran purchaser, the seller, or shared. Closing costs may vary among lenders and also throughout the nation because of differing local laws and customs.
3. VA appraisal
4. Credit report
5. Loan origination fee (usually 1 percent of the loan)
6. Discount points
7. Title search and title insurance
8. Recording fees
9. State and/or local transfer taxes, if applicable
No commissions, brokerage fees or "buyer broker" fees may be charged to the veteran buyer.