Just a few years ago, the VA loan was not the loan of choice in high cost areas due to maximum zero down loan limits. All of that changed when the government raised the maximum VA loan amount from $417,000 to $1,094,625.   These maximum amounts vary by locality and are of course higher in high cost housing areas.   It is now the best loan product for most active, retired, and reserve military members. As we will show below how a VA loan can actually make your house “prettier!”  

 

A FEW BENEFITS OF THE VA LOAN:

 

-         It is a 100% loan

-        Requires no monthly mortgage insurance payments.

-         The funding fee is less than the FHA loan and can be waived if you receive disability or it can be reduced with a down payment.

 

The less commonly known and underutilized benefit is the “Assumption” clause.

 

If you currently have or are considering purchasing a VA loan, you are entitled to pass on your loan through 2 different avenues:

 

A qualified veteran can assume your loan (rate and duration) using his or her eligibility. This is done through a substitution of entitlement, the assumption will free up your eligibility to pursue another VA loan and you are no longer responsible for this loan.

 

Any qualified buyer can assume your VA loan. Qualified in this instance refers to credit and income worthiness, not military service requirements. If a non-veteran assumes your loan, your entitlement stays attached to the loan and will not be restored until full payment of the assumed loan is made. In this case you cannot use your VA eligibility until the original loan is satisfied.

So how can this make your house prettier?   Consider two identical homes, next door to each other that are for sale at the same list price.   One owner / seller has a conventional (non-assumable) loan, the other has a VA assumable loan. Both have a great rate at 4.5%.    Since they purchased their homes, the interest rates have climbed to 8% (and yes, this can happen!).   The buyer choosing between the two has $100,000 to put down and would prefer to “assume” the VA loan at a great rate and low payments.   Or, the buyer could opt to put make a 20% down payment (to avoid PMI) and finance the conventional loan house at 8%.   Which would you choose?   The VA loan home now looks a lot prettier to our buyer.   

 

Another benefit pertains to the unfortunate case of divorce. Under these circumstances, one party can be removed from the loan when the assets are divided and only one person retains rights to the home. A refinance is not necessary to remove the party non responsible party (per the divorce decree). This benefit protects the loan in a high interest rate environment and saves the cost of the refinance.

 

As you can see, the VA loan has many advantages, especially when it is acquired with historically low interest rates. Can you imagine the competitive selling advantage your home, with an assumable VA loan of 4.75%, would have over other properties when the rates have risen to 8% or 10%?

 

If you would like more information about VA loans please call or email us at