The online request to our Sunday "Real Estate Today" show held a hint of desperation.
"I need to nail down a lower rate," Howard wrote. "But I am getting different opinions about my wife's VA loan."
It turns out Howard's spouse, a veteran of Operation Desert Storm in 1991, had passed away three years ago after a valiant battle with breast cancer. Her death was "not service connected."
We told Howard that because his wife's VA entitlement was used for the original loan, he would qualify for a rate/ term reduction on the loan under the streamline refinance program guaranteed by the U.S. Department of Veterans Affairs.
The VA streamline, known as the Interest Rate Reduction Loan, has no "season" requirement, meaning that borrowers who refinanced recently still are eligible. In addition, the loans (www.homeloans.va.gov) entail very little documentation and usually do not require an appraisal.
In order to qualify, borrowers must have a current VA loan. The interest rate varies on the loan type (some 30-year fixed rate loans are now less than five percent) and the length of the loan cannot exceed 360 months. Payments are due monthly. No more than two points may be rolled into this loan plus the allowable closing costs. A funding fee of approximately .5 percent is typically collected before closing and can be financed into the loan. Funding fee exemption is possible upon proper verification of disability.
VA lenders will ascertain that borrowers meet basic program requirements including:
- The new monthly loan payment must be for less than the original loan.
- The interest rate must be for less than the original loan (unless refinancing an adjustable rate mortgage).
- The term cannot exceed 360 months or no more than 10 years more than the original loan term (up to a max of 360 months).
VA loans are guaranteed by the Department of Veterans Affairs and can be used to purchase a single family home, including a townhouse or condominium unit in a VA approved project, to build a home, and purchase and improve a home. Loans are assumable under certain conditions and do not have a prepayment penalty.
The VA program began in 1944 when President Franklin D. Roosevelt signed the Servicemen's Readjustment Act into law. This bill, which eventually became known as the GI Bill, allowed veterans to purchase homes without making a down payment. The VA fixed-rate loan gives borrowers the option of financing their mortgage in 15-, 20-, 25-, or 30-year terms.
The perception that a VA loan guarantee can only be used once is incorrect. If an original VA loan was paid off, borrowers are eligible to use the guarantee again. For example, if you purchased a previous home with a VA loan and the buyer assumed your loan, your eligibility can be restored only when the assumer has paid off the loan. The only other alternative would be if the assumer is an eligible veteran who is willing to swap his or her available eligibility for yours.
Reservists also are eligible for VA programs. After 50 years of offering loans only to vets who served active duty, the VA changed its ways in 1992. Men and women who have completed six years in the Army, Navy, Air Force, Marine Corps, Coast Guard Reserves, the Army National Guard or Air National Guard, are eligible for VA home loans, including programs with no down payment.
As we mentioned in a recent column, federal regulations require that all loans insured by the Department of Veterans' Affairs be used only to acquire or refinance a "primary residence." However, it is possible to purchase a second home using your VA loan guaranty. As in many cases involving the use of real estate, the definition of primary residence is the place where you live "most of the year.'' So, if you use the home more than six months of the year, it can be defined as your primary residence.
The VA provides attractive, underestimated options for refinance and new purchase loans. It might make sense to do your research.
Tom Kelly's new novel "Cold Crossover" is now available in print at bookstores everywhere and in both print and Ebook form from a variety of digital outlets. Follow real estate agent and former basketball coach Ernie Creekmore as investigates the disappearance of his star player on a late-night boat. Check out the national reviews and put "Cold Crossover" on your list.