Happy Veterans Day, and I’d like to thank all the veterans and active duty military for their service to our country. As a veteran or active duty military, one of your best benefits is the VA (Veterans Administration) loan. This is the original, and last surviving 100% loan. Since the end of World War II, VA loans have allowed qualified veterans to get a piece of the American Dream and buy a home of their own with out a down payment and with easier qualifying standards than with conventional mortgages. This loan is now more important than it has been in years. As more and more veterans separate from the service after action in Iraq and Afghanistan, this will be a great way to take advantage of the lower home prices and buy a home at terms they can afford. Some of the features of the loan are:

• Can be used for a single family home, town home or an approved condominium.
• 0 down payment – The VA loan offers 100% up to the maximum benefit of $417,000. You can use the VA benefit for loans above this amount with a lower down payment than you would need for conventional financing.
• No mortgage insurance – There is no mortgage insurance with a VA loan. They do have a one time funding fee which can be added into the loan and financed over the course of the loan. This funding fee varies according to your service and whether you have used your benefit before.
• Competitive interest rates – The rates for VA loans are not set by the VA, but by the bank making the loan. This means that the rates move up and down with normal market fluctuations and are competitive from one lender to another. The rates for a VA mortgage are similar to FHA rates. Considering that these loans are with no down payment and with no mortgage insurance, they are the best bargains available.
• Low closing costs – Closing costs for VA loans are similar to other loans. As part of your purchase negotiation, you can also ask for a credit from the seller to pay for all the closing costs associated with purchasing the home.
• Easier qualifying standards than with conventional financing – VA loan guidelines are focused on making sure that the veteran is able to make the payment and isn’t going to get themselves in trouble or over their head. But they do allow for more lenience in credit. They don’t go by credit scores (They do allow automatic underwriting approvals) but want to see a history of the veteran meeting their obligations. It is okay if the borrower has had credit problems in the past, but they want to see no major problems in the past year. VA is also flexible with debt ratios and how much of a payment the veteran can afford.
• VA loans are assumable – This can be a real benefit if you are going to sell when rates are higher. The new buyer can take on the existing loan at the existing interest rate, which could be a real advantage for you down the road. VA loans also have no pre-payment penalty, so it won’t cost you more if you need to sell or refinance.

Qualifying for a VA loan is similar to qualifying for any other type of mortgage. We will look at your credit, your income and debts, your job history and the expectations for your continued employment. We also need to verify your military service and your eligibility for VA financing. We do that through a VA Certificate of Eligibility, which we can get as part of the loan process. In order to get a VA approval you will need at least these items:

• A copy of your DD214 discharge papers.
• Certificate of eligibility (or we will get it as part of the loan process).
• Past 2 years W2s.
• Current pay stubs for the past month.
• Current bank statements for the previous 2 months.
• Other items depending on your own personal situation.

There are a few things to watch out for with VA financing:

If you are buying a condominium, the condo needs to be on the VA approved list. An FHA approval doesn’t work and there is no spot approval process like there is with FHA. This can put a real limit on what you can look at as most of the VA approved condos are older properties. If you want to see what condos are available in your area, let me know and I will send you a list.

Only veterans and their spouses are eligible. If you are buying with someone other than a spouse, and they aren’t a veteran, you can qualify only with your income and close only in your name.

Residual income. VA loans have one ratio, 41% of your income for your housing payment and any debt. You can stretch beyond that ratio, but you will need to show that you have enough money budgeted to pay for all expected expenses. The VA has a formula for these expense and you will need to meet the residual income requirement in order for your loan to be approved.

If you are a first time home buyer and thinking about buying soon, there is one more thing to keep in mind. The Government is offering a tax credit of up to $7,500 if you purchase a home before July 1^st 2009. This means you can buy a home with no money down, and get a credit against your taxes for up to $7,500 next year. (The credit does need to be paid back over the next 15 years, but it is still a great deal.

If you have any questions on VA loans in the Chicago area or across the country, give me a call. I will be glad to help.

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