Podcast
Questions and Answers
A VA loan is made by the Department of Veterans Affairs directly.
A VA loan is made by the Department of Veterans Affairs directly.
False (B)
A VA loan can be used to purchase a residence with up to five units.
A VA loan can be used to purchase a residence with up to five units.
False (B)
A veteran is not required to occupy the home purchased with a VA loan.
A veteran is not required to occupy the home purchased with a VA loan.
False (B)
A downpayment is always required when obtaining a VA loan.
A downpayment is always required when obtaining a VA loan.
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The VA loan guaranty functions similarly to mortgage insurance, protecting the borrower if the lender defaults.
The VA loan guaranty functions similarly to mortgage insurance, protecting the borrower if the lender defaults.
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What is the minimum period of continuous active duty during peacetime required for VA loan eligibility in many cases?
What is the minimum period of continuous active duty during peacetime required for VA loan eligibility in many cases?
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Under what circumstance may a veteran's entitlement to a VA loan be restored?
Under what circumstance may a veteran's entitlement to a VA loan be restored?
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What is the standard maximum debt-to-income ratio for a VA borrower?
What is the standard maximum debt-to-income ratio for a VA borrower?
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Who typically originates VA loans?
Who typically originates VA loans?
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What document establishes a property's appraised value for a VA loan?
What document establishes a property's appraised value for a VA loan?
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What is the primary purpose of the VA loan program?
What is the primary purpose of the VA loan program?
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Which of the following is a key feature of a VA-guaranteed loan?
Which of the following is a key feature of a VA-guaranteed loan?
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A veteran is considering using a VA loan. Which of these property types is eligible?
A veteran is considering using a VA loan. Which of these property types is eligible?
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Which entity provides the funds for a VA-guaranteed loan?
Which entity provides the funds for a VA-guaranteed loan?
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What is a key requirement for a property purchased with a VA loan?
What is a key requirement for a property purchased with a VA loan?
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What is the primary factor in determining residual income for a VA loan?
What is the primary factor in determining residual income for a VA loan?
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For what purpose can a VA loan typically be used?
For what purpose can a VA loan typically be used?
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Under what circumstances might a lender approve a VA loan even if the income ratio and residual income requirements aren't met?
Under what circumstances might a lender approve a VA loan even if the income ratio and residual income requirements aren't met?
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Who can potentially assume a VA loan?
Who can potentially assume a VA loan?
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If a veteran's VA loan is assumed by another veteran who substitutes their entitlement, what happens to the original borrower's entitlement?
If a veteran's VA loan is assumed by another veteran who substitutes their entitlement, what happens to the original borrower's entitlement?
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Study Notes
VA-Guaranteed Loans - Learning Objectives
- List the characteristics that distinguish VA-guaranteed loans
- Describe the criteria for eligibility for a VA loan
- Define the role of the VA guaranty and how it affects the VA loan amount
- Illustrate how a substitution of entitlement works
- Calculate how much of a downpayment will be needed for a particular loan
- Describe VA underwriting guidelines
- List compensating factors that might help a marginal applicant obtain a VA loan
Suggested Lesson Plan
- Students should review the prior chapter on FHA-insured loans
- The learning objectives for Chapter 12, VA-Guaranteed Loans, should be reviewed
- The characteristics of VA loans will be presented
- Eligibility for VA loans, including service requirements and spouse eligibility, will be reviewed
- Exercise 12.1 will be given to students to review the prior chapter of FHA-insured loans.
- Review of learning objectives for the chapter.
Characteristics of VA Loans
- VA loans are made by institutional lenders, but a portion of the loan amount is guaranteed by the Department of Veterans Affairs.
- VA loans can be used for purchasing or constructing a residence with up to four units (or refinancing).
- The veteran must occupy the home (or one of the units in a multifamily residence), which is typically the principal residence.
- No downpayment is required, as long as the loan amount does not exceed the appraised value of the home.
- There is no maximum loan amount.
- There is no maximum income limitation.
- Less stringent qualifying standards apply.
- Mortgage insurance is not required.
- No prepayment penalty is allowed.
- The loan can be assumed by a veteran or a non-veteran.
- Funding fees are paid by the borrower, and vary depending on the downpayment, ranging from 1.25% to 2.15% of the loan amount. Some situations may allow for slightly higher or waived fees.
- A funding fee is an upfront charge paid to VA, instead of mortgage insurance.
Eligibility for VA Loans
- Eligibility requires a period of service in the armed forces.
- Veterans may receive a Certificate of Eligibility to apply for a VA loan.
- Spouses of veterans who were killed in action, died of service-related injuries, or are listed as missing in action or as prisoners of war may be eligible for a VA loan.
- Reserves or National Guard service may qualify for VA loans but requires minimum active duty requirements.
- Dishonorable discharges will prevent eligibility.
VA Loan Amounts
- Loan amounts are generally capped by the property's appraised value.
- The VA-approved appraiser's appraisal provides the property value.
- Most lenders require that the VA guaranty amount equals at least 25% of the loan amount.
- A downpayment may be required if the loan amount exceeds four times the guaranty amount.
- VA loans don't have a maximum loan amount.
- The maximum guaranty amount varies by county. The maximum guaranty amount is 25% of the current Federal Housing Finance Agency (FHFA) conforming loan limit for single-family residences, which may be higher in high-cost areas.
Underwriting Guidelines
- Borrowers must qualify for VA loans according to income ratio and residual income analysis.
- The income ratio method measures the borrower's debt obligations against their income, and the ratio should be 41% or lower.
- The borrower's residual income is determined by subtracting their shelter expenses, other recurring obligations, and taxes from their gross monthly income, and the residual income must exceed the minimum requirement.
- Exemptions may be granted to the income ratio for borrowers who meet additional compensating factors.
- Compensating factors, such as a strong credit history, low debt, or high residual income, can influence approval. Other factors include satisfactory previous homeownership experience, high residual income, low debt-to-income ratio, relevant tax credits for childcare/home ownership tax benefits, and significant equity if refinancing.
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Description
Test your knowledge on VA-guaranteed loans with this quiz based on Chapter 12. You'll explore eligibility criteria, loan characteristics, and underwriting guidelines. Prepare to enhance your understanding of how VA loans work and the unique aspects that set them apart from other loan types.
