VA Loan Appraisals, Closing Costs, & Required Occupancy

Written by guest blogger H.C. "Hutch" Hutchison, Ed.D.

VA Appraisal
Everyone wants to get good value for their money when they make any type of a purchase, especially if the purchase is several thousand dollars! To ensure that a veteran is not paying more for a house than what it is worth, the VA requires a VA Appraisal.

The VA will not guarantee a home loan unless the property is appraised (for value) by a VA-assigned fee appraiser. The required VA Appraisal can be requested by the buyer, seller, real estate agent, or lender (normally, the lender is the requester) by completing and submitting a VA Form 26-1805, Request for Determination of Reasonable Value. Upon completion of the appraisal, the requester pays for the appraisal according to a fee schedule approved by the VA. This VA Appraisal estimates the value of the property.

The VA Appraisal is not an inspection and does not guarantee that the house is free from any defects. A home inspection can be completed by a qualified home inspector to determine what, if any, problems or defects exist. The VA only guarantees the loan, not the condition of the property.

Closing Costs
When purchasing a home, closing costs must be paid in cash for such items as the title search, recording fees, hazard insurance premiums, and prepaid taxes.

If I want to refinance, do I still have to pay these costs in cash?

Normally when refinancing a VA loan, closing costs may be, but are not required to be, included in the loan amount, as long as the total amount of the loan does not exceed the value of the property. A loan with the purpose of reducing the interest rate on a loan may include closing costs and include a maximum of two discount points.

Points, sometimes called "discount points", are a form of pre-paid interest. One point equals one percent of the loan amount. Borrowers can offer to pay points as a method to reduce the interest rate on the loan, thus obtaining a lower monthly payment. For each point purchased, the loan rate is typically reduced by 1/8%.

Law requires that a VA funding fee also be associated with a VA guaranteed loan. The fee is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers.

Required Occupancy
One requirement for eligibility for a VA home loan is required occupancy. That means that the veteran (or the spouse of an active duty service member) applying for the loan must certify that he or she intends to occupy the home as a primary residence. However, when refinancing a VA guaranteed loan to reduce the interest rate, only prior occupancy must be certified.

H.C. “Hutch” Hutchison, Ed.D., retired from the U.S. Army in 1991, after more than twenty-two years of active duty. Since then, the former helicopter test pilot and aviation maintenance officer has earned his third post-graduate degree and taught under-graduate and graduate courses. In addition to practicing real estate with Coldwell Banker Sea Coast Realty, Hutchison is active in national, state, and local leadership organizations and local chapters of the Vietnam Veterans of America, Veterans of Modern Warfare, Disabled American Veterans, Veterans of Foreign Wars, and United States Army Warrant Officer Association.

VA Loan Entitlement & Eligibility

Written by guest blogger H.C. "Hutch" Hutchison, Ed.D.

The VA Loan Entitlement is the basic amount for which the Veteran’s Administration will insure or guarantee a loan. The loan entitlement is based on an applicant’s income.

The VA Guaranty Amount varies with the size of the loan and the property location with the VA guaranteeing 25 percent of the principal amount, up to the maximum guaranty. For the United States (excluding Alaska, Hawaii, Guam and the U.S. Virgin Islands) the guaranty amount is the greater of 25% of $417,000 or 125% of the area median price of a single family residence. It's a good idea to check with a lender for current figures. However, the guaranty amount cannot exceed 175% of the Freddie Mac limit for a loan on a single-family residence in the county where the property is located. In 2009 the maximum loan amount was $1,094,625.

The initial step in purchasing a home using a VA loan entitlement is to obtain a Certificate of Eligibility (COE), a VA-provided document that certifies your eligibility for a VA home loan guaranty. There are two ways to obtain a Certificate of Eligibility: online or by mail.

Online:
You can obtain a COE online by first registering at the Veterans Information Portal. There are instructions for applying for your COE online, but the process can be daunting if you aren’t familiar with all the jargon. However, try WebLGY first because approximately 56% of attempts result in an immediate COE. If you find the Internet a little overwhelming, then I recommend working with a lender that has access to the VA’s WebLGY system. A lender can help walk you through the process and may be able to issue your COE in minutes. A quick call to a lender can tell you if that lender has access to “WebLGY.”

As you shop for a loan, don’t limit yourself to just one lender. Visit three or more and let each lender know you are “shopping,” because competition can result in offers of more competitive loan packages.

By Mail:
Sometimes the VA does not have sufficient data in its online records. In that case, you must apply for the COE by mail. A veteran can obtain a COE by completing VA Form 26-1880, Request for a Certificate of Eligibility, and mailing the form to: VA Eligibility Center, P.O. Box 20729, Winston-Salem, NC 27120. Just remember, you are dealing with the VA. It may take time for the VA representative to receive, process and then approve (or reject) your request and then return the COE to you.

Once you receive your COE, you have completed Step 1 of the 7-step process to purchasing a home. Step 2 is finding a home you wish to purchase. We will look at that step in the next blog entry.

H.C. “Hutch” Hutchison, Ed.D., retired from the U.S. Army in 1991, after more than twenty-two years of active duty. Since then, the former helicopter test pilot and aviation maintenance officer has earned his third post-graduate degree and taught under-graduate and graduate courses. In addition to practicing real estate with Coldwell Banker Sea Coast Realty, Hutchison is active in national, state, and local leadership organizations and local chapters of the Vietnam Veterans of America, Veterans of Modern Warfare, Disabled American Veterans, Veterans of Foreign Wars, and United States Army Warrant Officer Association.

What is a VA Loan?

By H.C. “Hutch” Hutchison, Ed.D.

The men and women of the United State military devote themselves to ensuring that freedoms are protected, maintaining peace, and providing relief to those that are enduring hardship. Benefits of military service can include training in many diverse fields, pride of serving, civilian education, travel and the opportunity to grow as an individual. One significant benefit that can be derived from military service is the opportunity to obtain an home loan guaranteed by the Veterans Administration (VA).

What is a VA loan?

Banks and other private mortgage companies make a special type of home loan to veterans of the U.S. armed forces. The Department of Veterans Affairs guarantees a portion of each VA loan and protects the lender’s investment if the borrower defaults.

Who is eligible for a VA loan?

World War II: Sept. 15, 1940 – July 25, 1947

Post World War II: July 26, 1947 – June 26, 1950

Korean War: June 27, 1950 – Mar. 31, 1955

Vietnam Era: Aug. 5, 1964 – May 7, 1975

Post Vietnam: May 8, 1975 – Aug. 1, 1990

Persian Gulf: Check with VA regional office for specific eligibility.

Afghanistan & Iraq: Check with VA regional office for specific eligibility.

Peacetime Service: At least 181 days of continuous active duty with no dishonorable discharge (in part)
* May 8, 1975 – Sep. 7, 1980 (enlisted)
* May 8, 1975 – Oct. 16, 1981 (officer)
* Enlisted veterans whose service began after Sep. 7, 1980, or officers whose service began after Oct. 16, 1981 must normally have served at lease two years.

Reserve and National Guard: Members who have competed six years of service and honorably discharged (or still serving) may be eligible. Contact a VA regional office for more details.

*To determine individual eligibility visit http://www.va.gov or contact a VA representative.

H.C. “Hutch” Hutchison, Ed.D., retired from the U.S. Army in 1991, after more than twenty-two years of active duty. Since then, the former helicopter test pilot and aviation maintenance officer has earned his third post-graduate degree and taught under-graduate and graduate courses. In addition to practicing real estate with Coldwell Banker Sea Coast Realty, Hutchison is active in national, state, and local leadership organizations and local chapters of the Vietnam Veterans of America, Veterans of Modern Warfare, Disabled American Veterans, Veterans of Foreign Wars, and United States Army Warrant Officer Association.