Housing

VA Loan Alternatives

The VA mortgage loan is one of the most valuable benefits offered to service members. For a variety of reasons, some want to purchase a home but can’t or don’t wish to use VA benefits to do so.

The reasons for this could include wanting to purchase a home meant to be used as an investment property, the borrower may have future plans for VA loan entitlement but wants to buy a home in the meantime, etc. No matter what the reason for pursuing a home loan without a VA mortgage, borrowers should know what options are open to them.

There are several options for those who want a mortgage or a mortgage-type loan to purchase real estate.

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Basic Alternatives To A VA Home Loan

Many veteran finance blogs and websites discussing this topic will list the following loans as VA mortgage loan alternatives:

FHA loans
USDA mortgages
Conventional loans

Choosing An FHA Mortgage Over A VA Loan

VA loans have zero-down payment required in most cases, no private mortgage insurance, and a waived loan funding fee for those who receive or are eligible to receive VA compensation for service-connected medical issues. FHA mortgages require the borrower to place a minimum 3.5% down payment, have an Up-Front Mortgage Insurance Premium as part of the closing costs, and no waivable lender’s fee or funding fee. So why would a veteran choose an FHA mortgage instead?

Some veterans or service members may choose an FHA mortgage anyway for two important reasons. One reason is that the veteran already owns a property and has used up his or her VA loan entitlement; the VA loan benefit in such cases may simply not be available and another option needs to be found.

Why Choose An FHA Mortgage?

The reason some choose FHA over other non-VA alternatives is that FHA loans, like VA mortgages, are government-backed loans and feature lower interest rates. They also do not permit a penalty for paying off the loan early (similar to the VA loan program) and have an FHA Streamline Refinance option similar to VA mortgages, too.

Like VA loans, occupancy is a requirement and you cannot buy a home as an investment property with FHA mortgages. You are permitted to buy a house with as many as four living units (both VA and FHA loans permit this) and you are allowed to rent out the unused units as long as you are living on the property yourself.

USDA Loans

The USDA mortgage is similar to the VA home loan program in that there is a zero money down option, occupancy is required, and the USDA mortgage is a government-backed loan program with lower interest rates.

For USDA loans, the same basic rules other government-backed mortgages have applies:

Occupancy is required
You cannot purchase an investment property
A demonstration of need is required

USDA Loans Are Not For All Applicants

There are income caps and household earning limits for USDA home loans, and the property must be in an approved rural area. The good news is that most areas have zones that are in the USDA approved area for purchase loans.

The maximum loan amount for USDA loans may be lower than past loan limits for VA mortgages. The VA home loan program was changed by legislation in 2019 to eliminate VA loan limits, so the comparison of loan limits does not apply after January 1, 2020, but you see how the two programs differ greatly in this area.

Conventional Loans Versus VA Mortgages

While some might think it a bit obvious to discuss conventional mortgages as an alternative to VA home loans, the VA-like conventional loan is an aspect of conventional lending that is not as well-known to some veterans.

Such loans are designed to function more like VA mortgages but are not part of the VA loan program. One good example of this type of home loan alternative is the Navy Federal Credit Union Military Choice Loan, a mortgage offering no down payment, a fixed interest rate, and private mortgage insurance paid for by the lender.

Conventional Loans That Behave Like VA Mortgages

Sound familiar? Most of those features are offered via the VA mortgage loan benefit (VA loans permit adjustable-rate options), but in the Navy Federal loan, the VA does not get involved, the veteran does not use VA mortgage loan entitlement, but still applies for a loan that is offered with similar (not identical) terms and features as the VA mortgage program.

Conventional loans, especially the ones that specifically cater to veterans, vary greatly from lender to lender. These programs are often restricted to qualifying service members, veterans, or their family members depending on the structure of the home loan program and other variables.

There are other types of lending that are veteran-friendly that may be open to non-vets as well.

Bank Statement Loans

Some veterans want to buy a property after leaving military service but they either want to purchase an investment property (VA loan rules require owner occupancy and do not support the purchase of investment homes), they are self-employed or small business owners who fear their chosen career path may make them ineligible for a VA mortgage.

These bank statement loans are designed for any qualified borrower, not just veterans or those still in uniform, but they can be a big help for any borrower with a need that cannot be met with a VA mortgage such as the purchase of an office, investment real estate, a property meant to be used as an Airbnb, etc.

This is where a bank statement loan, also known as a stated income mortgage, can help. Lenders offer this type of real estate loan which requires no W2s or other tax paperwork. Instead, the borrower submits bank statements showing deposits for 12-24 months. Other documentation may be required to verify your income and employment as a small business owner, freelancer, contract worker, etc. You may need to furnish 1099s, business licenses, etc.

More Alternatives To VA Mortgages: State-Based Home Loan Programs

There are other options for veterans and currently serving troops who want VA loan alternatives. You can consider a non-VA loan aimed at veterans offered by state or municipal programs such as the Mississippi Veterans Home Purchase Board (VHPB).

The VHPB was established by the Mississippi State Senate to offer lower interest rates and offer qualifying vets “mortgage loan money at a rate lower than the rate charged by private sector mortgage companies.”

The State Purchases, Then Resells

For this particular program, the state agency purchases the home and resells it to the veteran at a “much lower” interest rate according to the official site, saving the veteran potentially thousands of dollars over the lifetime of the mortgage.

Not all states have veteran home loan programs, and not all states offer identical assistance. Some states may provide the loan program itself, others may offer down payment help or other perks. The states that provide some form of mortgage assistance or a mortgage alternative to VA loans include (but may not be limited to) the following:

Alaska
California
Nevada
New York
Texas
Washington
Indiana
Maryland
Massachusetts
Mississippi
Oregon
Wisconsin
Missouri
Nebraska
Ohio
Tennessee
Utah
Georgia
Florida
North Carolina
Pennsylvania

How To Ask A Lender

The best way to get started finding the right VA loan alternative for you when dealing with conventional lenders? Find a lender who can speak to you about VA alternative loans. You’ll want to let them know you are a veteran or currently serving, and are seeking VA alternative loans with similar terms and conditions to a VA mortgage.

There are other such programs offered by private companies. USAA features a non-VA mortgage with similar terms, and some lenders may participate with state-run programs that offer additional lending options to qualifying service members or spouses.

Important Questions To Ask Any Lender (VA or Non-VA)

If you are looking for an alternative to a VA mortgage, there are some very pertinent questions to ask your loan officer. It is helpful to know each of the alternative loan products and consider the terms and conditions of the VA mortgage. VA home loans offer the following advantages to the borrower. Make sure you know specifically whether such advantages are open to you with other types of loan.

Ask your lender the following questions to make the most fully informed decision you can:

Does my mortgage loan have a penalty for early payoff and what triggers that penalty?
What if I want to repay my loan with higher-than-required monthly payments? Are there special procedures I must follow to do so?
Are there special requirements to pay the loan off early? What are they?
Does this type of loan typically come with a balloon payment?
Please explain the terms and conditions of any such balloon payment.
Is this loan assumable? What are the requirements if I want to have the loan assumed?
Is there private mortgage insurance or a related premium required? How much?
How many units can I purchase with this type of mortgage?
Am I permitted to rent out the unused units as I see fit?
Are there restrictions on how I can use the property? (Airbnb, bed-and-breakfast, timeshares, vacation homes, or condo-hotel operations are all prohibited under VA loan rules).

You will also need to ask the lender to compare down payment requirements where applicable, ask about loan term requirements, and ask to compare interest rates on the different loan options you’re reviewing.

Remember that a mortgage loan commitment involves monthly payment. That monthly payment is NOT limited to just the principal and interest on the loan. There are property taxes, homeowner or condo owner association fees that may be required, and you may need to use escrow to pay for some expenses associated with the home or the home loan.

Ask your lender if there are different requirements in such areas for the loan alternatives you seek and be sure to ask which type of loan or VA loan alternate the lender may have the most experience with where veterans are concerned.

Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

Related Articles
VA Home Loans: How to Get Started	FAQs About VA Home Loans
VA Home Loan Eligibility	VA Home Loan Mistakes
Can You Get a VA Loan with Bad Credit?	Financial Responsibility: Resources for Managing Military Pay

VA Direct Loans for Native Americans

by Heidi

VA Direct Loans are offered to help qualifying Native American veterans apply for a home loan using VA benefits. But the VA Direct Loan program is different than the standard VA mortgage loan, and only qualified Native American veterans may apply.

What Are VA Direct Loans?

The VA official site states that the Native American Direct Loan (the formal name of the program) is intended specifically as a way for qualifying Native service members to use VA loan benefits for properties on federal trust lands.

These loans function in a similar fashion to VA mortgages issued by a participating lender, but they are issued directly by the Department of Veterans Affairs, hence the name “Direct Loan.”

That is NOT how the VA loan program works for most veterans who are not Native or indigenous American members of the U.S. military and who are not buying homes on federal trust lands.

Typical VA mortgages are handled by a private company–a participating lender who meets VA standards and gets the proper training.

VA Native American Direct Loans do not involve a private company, third-party lender. Home loan funds come to the applicant directly from the government.

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What Can Direct Loans Be Used To Do?

You can buy, refinance, build, or improve a home using a Direct Loan. However, the home must be located on tribal land (see below).

What Are Federal Trust Lands?

The official site of the United States Bureau of Indian Affairs (BIA) states, “Tribes are sovereign governments and trust lands are a primary locus of tribal authority.”

The BAI site adds that many federal programs including the VA Native American Direct Loan program is only offered in cases where reservations or trust lands are involved.

Benefits Of The Native American Direct Loan

There are many advantages with a Native American Direct Loan. First Nations veterans who wish to buy, build, improve, or refinance a home on trust lands have a variety of advantages over borrowers who cannot use VA loans or the Direct Loan benefit:

Zero downpayment
No penalty for early payoff
Low VA loan funding fees
VA Loan Funding Fee waiver for VA-rated disabled veterans
No VA-required Private Mortgage Insurance
Low interest rates
Low closing costs
Fixed-rate 30-year mortgage
This benefit may be re-used

Who May Apply For A VA Direct Loan?

The VA official site states that in order to qualify, the Native American / indigenous/ First Nations applicant must meet the minimum time-in-service requirement for the VA loan benefit. This requirement varies depending on when you joined the military, so be sure to ask a loan officer or a VA representative about your specific era of enlistment.

Like a typical VA mortgage loan, once you have met the minimum time-in-service standards, you must apply for a VA Certificate Of Eligibility (COE) and have enough entitlement to use for your home loan. You can apply for a COE online at the VA official site, or you can call the VA at 1-800 827-1000 to request assistance with completing the form.

To qualify for the Direct Loan program, your mortgage must be for the purchase, construction, or improvement of a property that is located or will be located on federally-recognized trust lands.

These loans are also available for real estate on what the VA describes as, “allotted lands, Alaska Native corporations, and Pacific Island territories” according to the Department of Veterans Affairs.

Who May Not Use A VA Native American Direct Loan

Native American Direct Loans are not offered for buyers looking for properties located outside federal trust lands or any of the other allotted lands or territories described above. Borrowers who want to buy real estate on trust lands must be eligible to live on those lands.

Those who would be otherwise eligible for a Native American Direct Loan but are not looking for property on federal trust land may be required to use the typical VA home loan application process with a third-party participating lender.

How To Apply For A Direct Loan

It is first required that you determine whether or not the tribe has a Memorandum of Understanding on file with the federal government. The Department of Veterans Affairs has an interactive map you can use to determine which tribes have an MOU on file.

You will also need contact information for the Regional Loan Center of jurisdiction over your potential direct loan. Call 1-877-827-3702 to get assistance with the initial paperwork, requirements, and further information once you are ready to move forward. You will be given instructions on where to download or complete the initial forms and submit your Certificate of Eligibility information where required.

Rules You Should Know About Applying For A Native American Direct Loan

The Memorandum Of Understanding Requirement

The Native American Direct Loan program run by the VA does not automatically approve all loan applications from financially qualified borrowers. In order to qualify for this program, you must be purchasing land on property where, as the VA reminds, the tribal government there has signed a Memorandum of Understanding (MOU) with the Secretary of Veterans Affairs.

According to the VA, “The MOU spells out the conditions under which the program will operate on its trust lands.” Without the MOU, the purchase of a home on a specific tribal land may not be possible.

What Is Required To Obtain A MOU For The Native American Direct Loan Program

Tribal governments or similar entities must sign a document agreeing with the federal government to establish rules or enforce existing procedures, “…that apply to the conveyance of a leasehold interest in real property by an American Indian borrower/mortgagor to a lender, Federal Agency or their assignee as security for the loan.”

This agreement would include acknowledging and enforcing specific processes for “foreclosing the interest, eviction and procedures for resale of the lot or the dwelling (or both) purchased, constructed, rehabilitated or refinanced using the proceeds of the loan.”

These quotes are taken directly from the official MOU. Some of the document is designed to insure that effective partnerships and cooperation are established by the Memorandum. One example:

“With regard to any loan submitted to HUD, VA or USDA for guarantee or insurance, the authorizing Federal Agency shall have the same rights as the lender with regard to that loan and the security.” The agreement stipulates that “No action” that requires the lender’s agreement can be taken unless the VA “also consents.”

For Tribes Without A Current MOU

The VA encourages tribal governments without a current MOU with the Department of Veterans Affairs to please contact the Regional Loan Center of jurisdiction. Those interested in seeking a direct loan on tribal land without an MOU are encouraged to do the same.

VA Loan Occupancy Rules

The VA official site states that borrowers eligible to apply for a VA Direct Loan must meet the same occupancy requirements as a typical VA mortgage.

That means at least one borrower obligated on the mortgage will occupy the property as the primary residence, and the home cannot be used as an occasional-occupancy property like a timeshare or vacation home.

Borrowers Must Financially Qualify

Like ordinary VA mortgages, applicants must qualify for the loan with credit scores, income, and be able to realistically afford the mortgage.

VA Loan Funding Fees Apply

As mentioned above, the VA loan funding fee is applicable for Direct Loans. Most borrowers will pay “a low funding fee of 1.25%” according to the VA official site at the time of this writing. Refinance loans under the Direct Loan program have a VA funding fee of 0.50%.

As with typical VA mortgages, Direct Loan borrowers do have the option to finance the VA funding fee or pay it in cash; the fee must be paid in full and no partial funding is permitted.

Some Native American Direct Loan applicants will never have to pay a VA loan funding fee. This is true in cases where the applicant:

Receives VA compensation for a service-connected disability
Would be entitled to receive compensation for a service-connected disability if not for the receipt of retirement pay or active duty pay
Is a surviving spouse of a veteran who died on duty or as a result of military service

VA Loan Funding Fee Refunds

Those who are waiting for VA determination for service-connected medical claims and have not had their records officially updated may be required to pay the VA loan funding fee as though they were not exempt, then apply for a refund of the funding fee once the VA has officially updated the veteran’s records.

Such refunds are never automatic and must be applied for. Call the VA directly at 1-800 827-1000 to get instructions on how to apply for your VA loan funding fee refund and be sure to have your loan paperwork and details handy when you call.

Restrictions On The Native American Direct Loan

Native American Direct Loans can be used to primary residences only. The home you buy must be classifiable and taxable as real property, which means no recreational vehicles, houseboats, or mobile homes not intended to be affixed to a permanent foundation.

You cannot purchase a home using a VA mortgage (Direct loans or otherwise) to operate commercial enterprises, buy property that is not primarily residential, or property where the non-residential use of the home interferes with the residential nature of the house.

Refinancing With A Native American Direct Loan

You may be permitted to refinance a mortgage using a Direct Loan, but you will not be permitted to skip payments-the loan must be brought current at closing time one way or the other whether that is by paying off any late or missed payments, including them into the new loan amount, having the missed payments forgiven, etc.

Borrowers are free to sell, transfer, or dispose of the property at any time and there are no restrictions on resale except for any applicable tribal or territorial laws that may affect the transaction.

Cash Back At Closing Time

All VA mortgages including Native American Direct Loans have a restriction on cash back to the borrower at closing time when the loan transaction is not specifically designed to do so (such as a VA cash-out refinance loan).

Borrowers applying for new purchase mortgages under the Direct Loan program should not expect or receive cash back except for certain refunds that may be allowable under VA loan rules.

Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

Related Articles
VA Services For Native American Veterans	State Veteran’s Benefits
Should Veterans Choose an FHA or a VA Loan?	Veteran Friendly Home Loan Programs
VA Home Loan Streamline Refinance Options	VA Loan Delinquency Assistance For Veterans

Should Veterans Choose an FHA Mortgage or a VA Loan?

by Heidi

Should a veteran choose an FHA mortgage over a VA loan? There are several reasons why a veteran might consider an FHA loan and some of those reasons may have to do with wanting to save VA mortgage entitlement for a later date, or an applicant might have already used up VA loan entitlement but need to purchase another property.

Whatever the motivation for comparing FHA to VA mortgages, there are some key aspects of both programs to be aware of before committing to one or the other.

We offer these aspects for comparison side-by-side, but be aware that features and requirements for both of these government-backed mortgage loans are subject to change due to legislation, Presidential directives, government regulatory modifications, etc.

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The VA Home Loan offers $0 Down with no PMI. Find out if you’re eligible for this powerful home buying benefit. Prequalify today!

FHA and VA Home Loan Similarities

In many aspects, both VA and FHA mortgage loans are quite similar and have features that are almost identical in some ways.

Property Requirements

Both VA and FHA mortgages have specific property requirements. Some of those will be addressed below, but the most important thing borrowers need to know in this area initially is that both VA and FHA mortgages are only intended for:

Properties that are in the Continental United States, its territories, etc. VA and FHA home loans cannot be applied for in other countries to be used to purchase property outside U.S. government jurisdiction.
In general, VA and FHA mortgages cannot be approved for any property that is not taxable as real estate. That means that a mobile home must be fixed to a permanent foundation as a condition of loan approval, it means that an RV or a houseboat can never qualify for a VA or FHA mortgage because they do not legally qualify as real property.
You also cannot purchase a property that is not primarily residential in nature, or properties that have non-residential features that overpower the residential nature of the home. Non-residential use of the home is restricted to under 50% of the total floor space and may be further restricted by state or local zoning issues.
FHA and VA home loan rules do not override state or local laws, and local building code or other requirements. These regulations may factor in for any purchase of property that is not 100% residential in nature as well as those that are more typical suburban homes.

FICO Scores

Both loan programs have more forgiving credit requirements. The FHA has a FICO score range of 580 or better for maximum financing, but your lender may require a higher FICO score than that for the best interest rates and lowest down payment.

VA mortgage loan rules have traditionally refused to spell out any FICO score requirements at all, leaving those details to the lender. In the case of both mortgage loan programs, the fact that the loans are government-backed gives the lender more incentive to be flexible with credit score requirements.

In general, FICO score requirements for home loan programs are subject to change for a variety of reasons; you may also find that for some VA and FHA mortgages, certain programs may require higher FICO scores.

Higher Scores May Be Required For Some Loans

If you plan to have a home built for you using an FHA One-Time Close Construction loan, for example, your FICO scores will be given more scrutiny due to the more complex nature of the loan, the dollar amounts involved, etc. Lender standards will also play an important role in how these requirements are determined and enforced.

Occupancy Rules

Both VA and FHA mortgage loans and refinance loans generally require occupancy as a condition of home loan approval. FHA mortgages require at least one borrower obligated on the mortgage to occupy the home as the permanent, primary residence. VA mortgage loans require this, too.

FHA and VA cash-out refinance loan options both require occupancy. However, an important difference for VA borrowers is that the VA home loan program does NOT require occupancy for VA Interest Rate Reduction Refinancing Loans (VA IRRRLs).

For VA IRRRLs, the borrower is only required to certify that the home WAS used as the primary residence before applying for the new loan.

Interest Rates

VA and FHA mortgage loan rules are clear-neither government agency is responsible for setting or regulating interest rates for government-backed mortgages.

The borrower and the lender must negotiate the interest rate on the loan and your credit scores, repayment history, employment record, and other variables may factor into what your lender is willing to do for you in the interest rate department.

The only thing close to a regulation for interest rates on these government-backed mortgage loans is language found in both VA and FHA regulations requiring that the rates, expenses, fees, and other charges that must be paid by the borrower should be “reasonable and customary” compared to similar home loan products.

VA and FHA Mortgage Loan Programs That Are Similar

Both FHA and VA mortgages may allow the purchase of a mobile home, a farm home (under the right circumstances), a condo unit, a suburban house, a mixed-use property that has at least 50% of the floor space dedicated to residential purposes (a percentage that is subject to change based on current legislation, government policy, or other variables), and/or multi-unit properties up to four units.

VA Home Loan Benefits Versus FHA Loan Benefits: The Down Payment

FHA mortgages require a minimum 3.5% down payment that is calculated on the adjusted value of the property. The down payment requirement states that other expenses for the mortgage loan such as lender’s fees, appraisal fees, and closing costs cannot be considered part of the down payment.

FHA loan down payments are completely separate from any other closing costs associated with a real estate loan.

VA mortgage loans as a rule do not require any down payment, but there are circumstances where one may be required due to lender standards for certain FICO score ranges, credit history issues, etc.

When A VA Home Loan Down Payment May Be Required

You may also be required to pay up front in cases where there is a difference between the appraised value of the real estate and the asking price-the borrower cannot be forced to close the deal in such cases.

There is something called the VA Escape Clause which forbids the lender and seller from compelling the buyer to complete the transaction when the loan amount is lower than the asking price. The borrower is free to choose the property regardless but is required to pay the difference between the asking price and the loan amount in cash. This cannot be financed.

VA Home Loans Versus FHA Home Loans: Mortgage Insurance

The VA home loan program itself does not require either private mortgage insurance or mortgage insurance premiums. Your individual lender may or may not require such insurance. FHA mortgages, on the other hand, require an Up-Front Mortgage Insurance Premium (UFMIP) and a mortgage insurance premium (MIP, not to be confused with Private Mortgage Insurance or PMI). The amount of this expense will vary depending on a variety of factors.

For FHA mortgages the borrower has the option to finance the UFMIP up front or pay the entire amount in cash. You are not permitted to partially finance the UFMIP.

FHA Loans Versus VA Mortgages: Funding Fees

Most home loans feature a funding fee, and the VA mortgage is no exception. FHA mortgages use the UFMIP and MIP fees as the funding fee, while VA mortgages have a funding fee that is very different, mostly due to the existence of an exception for borrowers who receive or are eligible to receive VA compensation for service-connected medical conditions.

Anyone who receives or is eligible to receive such payments may apply for an exemption to the VA funding fee.

If you are currently being evaluated for a VA medical claim but do not have an official VA claim decision on the books just yet, you may be required to pay the fee as though you were not exempt and apply for a refund once the VA has updated your records.

Know that such refunds are NOT AUTOMATIC and MUST be applied for-ask your lender how to proceed if this situation applies to you.

FHA Versus VA Mortgage Loans: Loan Entitlement And Uses For The Mortgage

The FHA home loan program does not establish entitlement to use it, nor does it regulate how many times you can apply for an FHA mortgage. That does NOT mean you are permitted to buy as many properties as you want with an FHA loan.

The FHA Single-Family Home Loan program is intended to support borrowers who are purchasing primary residences for personal occupancy; it is not for investment properties, time shares, bed-and-breakfasts, Air b-n-b type businesses, or any “transient occupancy” operation where tenants rent for fewer than 30 days at a time.

FHA mortgages can be used to buy multi-unit homes and the borrower is free to rent out the unused units in the property. The same is true for VA mortgage loans. Both loan programs allow you to be an on-site landlord, but not an off-site one. You must live in the home you buy with the FHA mortgage or VA loan.

VA mortgage loans DO feature a set amount of entitlement-you can use up to 100% of your VA home loan entitlement to buy a home and you can apply to have that entitlement restored once your home is paid in full, refinanced in certain circumstances, or sold.

You do NOT need your full entitlement when applying for a VA Interest Rate Reduction Refinance Loan-this is a refinance mortgage option intended to help borrowers reduce their monthly payments and/or interest rate, or get out of an adjustable rate loan and into a fixed-rate mortgage.

You DO need to apply for restored entitlement or use existing entitlement when applying for a VA cash-out refinance loan.

Basic Observations About FHA Purchase Loans Versus VA Home Loans

In some ways, FHA and VA loans are very similar. They are both government-backed, offer reduced risk to the lender, and more support for the borrower.

Early Payoff Penalties Prohibited

Both VA and FHA mortgages prohibit a penalty for early payoff of the loan. Compare that feature to some conventional loans and you may soon learn whether a government-backed loan is better for you with such built-in consumer protections.

Streamline Refinancing Options

VA and FHA mortgage loans both feature the ability to apply for a Streamline Refinance loan (The VA IRRRL mentioned above and the FHA Streamline Refinance equivalent), which is an advantage you may find over certain conventional loans.

No Government-Required Credit Check For Streamline Refinance Loans

VA IRRRLs (also sometimes known as a VA Streamline) and FHA Streamline Refinance loans both feature no government-required credit check or appraisal except under specific circumstances. VA and FHA Streamline refinances generally require a tangible benefit to the borrower in the form of a lower payment, interest rate, getting out of an adjustable rate loan, etc.

Excess Cash Back To The Borrower Prohibited

Neither VA or FHA mortgages permit cash back to the borrower in excess of $500 except in the form of legitimate refunds for money paid up front and later financed into the loan. You are not allowed to apply for more home loan than is required for the purchase of the property with the intent of pocketing the difference-federal law prohibits this practice.

VA Funding Fees and VA Funding Fee Waivers

Veterans may find the VA loan more preferable to the FHA counterpart for any number of reasons, but one of the most compelling is the waiver of the VA Loan Funding Fee for disabled military members (see above).

With more servicemembers than ever coming back from duty with service-connected injuries, medical issues, mental health needs, and related issues, the waiver of the VA funding fee is a big help. Such savings are not possible with the FHA equivalent and for many that is a major factor in making the decision to go with a VA mortgage instead.

Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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VA Home Loan Streamline Refinance Options

by Heidi

VA home loan refinance options include a unique benefit known as the VA Streamline Refinance. This type of refi loan has no VA-required credit check or appraisal (the lender is free to require these depending on circumstances) and is intended to provide a benefit to the borrower in the form of a lower interest rate, a lower mortgage payment, or other benefits we’ll discuss below.

Refinancing with a VA mortgage can lead to lower interest rates, get you out of an adjustable rate mortgage into a fixed-rate loan, and help you to add more stability and predictability to you monthly mortgage payment.

{Sponsored} Veterans Can Buy a Home with $0 Down
The VA Home Loan offers $0 Down with no PMI. Find out if you’re eligible for this powerful home buying benefit. Prequalify today!

You can use a VA Streamline refinance on any current VA mortgage, and you may be permitted to refinance a delinquent VA mortgage loan using a VA IRRRL.

There may be limits on what you can do to refinance a delinquent VA mortgage depending on the age and severity of the delinquency.

It is best to speak to a participating VA lender to learn what your options are in this area if you are behind on VA mortgage payments. Act sooner instead of later for best results and the most flexible options.

VA Refinance Loans In General

Those who borrow money to buy a home using the VA Loan benefit have the option to use the VA loan program to refinance their mortgages at a later date.

These refi loans can include cash-out refinancing (which requires a new appraisal and credit check and has an occupancy requirement), but also VA Streamline Refinance options which have no VA-required credit check or appraisal in most cases.

VA cash-out refi loans can actually be used to refinance VA or non-VA mortgages but the VA Interest Rate Reduction Refinance Loan (VA IRRRL or VA Streamline Refinance) can only be used on existing VA mortgage loans.

The VA Streamline Refinance Option: The Interest Rate Reduction Refinance Loan

VA Streamline Refinance loans are also known as VA Interest Rate Reduction Refinance Loans or VA IRRRLs for short. This loan is the same no matter which name is used.

The VA IRRRL has the following requirements: the borrower must have an existing VA mortgage and the new loan must refinance that existing VA loan. The borrower must be able to certify in writing that the home was being used as the primary residence before the loan application and/or is being used as such at the time of the loan application.

VA Streamline Refinancing And Second Mortgages

VA home loan rules state that the mortgage holder for any second mortgage must agree to make the VA refinance loan the “first mortgage.”

Applying For A VA Streamline Refinance Loan

You do not have to use the original lender for a VA Streamline Refinance Loan, though you may find the process easier to navigate in some ways since your original lender will have all your application data with no need to transfer it to another institution.

That said, you do not have to use the original lender and it often pays to shop around for a new financial institution or at least see what other lenders have to offer at application time. It’s important to shop around aggressively for a new loan since you don’t know what kinds of interest rates or terms are being offered since the last time you tried applying for a major line of credit.

Applying for any refinance loan can take time-you want to know what your lender needs to know about your current finances and credit use.

VA Streamline Refinance Loans are unique because the lender has the option (unless the loan increases monthly payments beyond the VA limit of 20% due to add-ons to the loan) to skip the appraisal and credit check.

This comes as a relief for many loan applicants but remember that Streamline Refinance loans are only for existing versions of the same kind of loan.

VA Streamline Refinances Are For Existing VA Mortgages Only

You can apply for a Streamline Refi loan for your existing VA loan, and those who have FHA mortgages can apply for the FHA version of the Streamline Refi. But you can’t VA Streamline a non-VA loan even if it is an FHA mortgage and vice versa.

VA IRRRLs Must Result In A Benefit For The Borrower

The VA loan rules for Streamline Refinances or VA IRRRLs state clearly that a lower mortgage payment or interest rate are two of the kinds of benefits a VA IRRRL requires in most cases. Other benefits to the borrower can include but may not be limited to:

Leaving an adjustable rate mortgage for a fixed rate loan
Shortening the loan term
Refinancing a delinquent loan

VA Advice On Closing Costs

Certain closing costs financed into the mortgage can raise the monthly mortgage payment more than you might expect. VA loan rules for financed closing costs includes the following advice from HUD 4000.1:

“A significant increase in the veteran’s monthly payment may occur with any of these three exceptions,” especially when, the VA Lender’s Handbook says, combined with the financing of closing costs, financing of two discount points, or financing of the funding fee. Borrowers may also experience a higher payment if an adjustable rate mortgage is refinanced with a VA IRRRL.

Add-Ons To The Loan Can Increase Your Monthly Payments

Sometimes a VA Streamline Refinance loan does not result in a lower mortgage payment. This is often due to add-ons to the loan (see above) in the form of financed closing costs or other expenses.

VA loan rules include provisions for this; if your monthly payment goes higher by 20% or more, the lender is required to take steps that may include a new credit check. The lender, according to the VA Lender’s Handbook, must in such cases:

“…determine that the veteran qualifies for the new payment from an underwriting standpoint; such as, determine whether the borrower can support the proposed shelter expense and other recurring monthly obligations in light of income established as stable and reliable.”

The lender is also required to make sure the borrower is financially qualified to accept the increased monthly mortgage payment when it is raised by 20% or better.

Avoiding A Certain Type of Home Loan Add-On By Paying In Cash

Some VA borrowers choose to pay discount points on their mortgage loan or refinance loan to get into a lower rate. With VA IRRRLs you may do this by paying for any “reasonable” amount of discount points in cash.

VA borrowers applying for VA Streamline Refinance Loans are restricted to financing such discount points-only two points can be rolled into the loan amount.

What You Cannot Do With A VA Streamline Refinance Loan

A VA Streamline or VA IRRRL cannot result in cash back to the borrower except under specific circumstances the VA has defined in Section 6-5 of VA Pamphlet 26-7 which states that there are a very limited number of circumstances where a borrower is permitted to get cash back on a VA Streamline Refinance transaction. They are usually for items pre-paid but that require a refund later due to errors, changes in the amount of the final payoff, and any up-front fees that were later rolled into the loan amount such as:

Appraisals
Credit reports
Escrow refunds

VA Streamline Refinance loans cannot be used to take equity out of the property in cash, they cannot be used to pay off debts (except for the previous mortgage being paid off by the new loan) and the VA Lender’s Handbook specifically states that the “…general rule is that the borrower cannot receive cash proceeds from the loan.”

The VA goes so far to say that if required, the loan amount itself “must be rounded down to avoid payments of cash to the veteran” where required.

One Exception To The No-Cash-Back Rule

There is only a single, non-refund-based exception to VA home loan rules for cash back to the borrower on a VA Streamline transaction. That exception? “Reimbursement of the veteran for the cost of energy efficiency improvements up to $6,000 completed within the 90 days immediately preceding the date of loan closing.”

Ask your loan officer if you are interested in such energy-efficient improvements; you may be directed to apply for a VA loan option known as the Energy Efficient Mortgage which can be added onto the loan amount for both new purchases and refinance loans.

The caveat here (aside from the usual warnings about how such add-ons can increase the monthly cost of your home loan) is that you may ONLY use the funds disbursed for the approved projects you discuss with your lender.

VA IRRRL Interest Rates

A lower interest rate is one of the tangible benefits for VA Streamline Refinance / VA IRRRLs. But not all VA Streamlines will provide a lower interest rate. Some borrowers are refinancing into fixed-rate loans and out of adjustable rate mortgages or ARM loans.

Depending on where the borrower is with the ARM loan, the interest rate offered on the VA Streamline may be higher, but the rate can be locked so that there are no future changes to the interest rate to worry about.

That is one reason why the VA Streamline is attractive to those with ARM loans-the predictability of future mortgage loan payments is a definite benefit.

Other Things You Should Know About The VA Interest Rate Reduction Refinance Loan

In general, the VA Lender’s Handbook spells out some fees and expenses that may be charged to the veteran by a participating VA lender for issuing a VA IRRRL or VA Streamline Refinance loan.

These fees can include the lender’s flat fee, the VA loan funding fee, discount points, and closing costs. The VA Lender’s Handbook also mentions that, “The lender may also set the interest rate on the new loan high enough to enable the lender to pay all closing costs.” This is allowed only if lower rates and lower monthly payment requirements are met.

Refinancing A Delinquent VA Mortgage

VA loan rules allow for a VA IRRRL to pay off and refinance a delinquent VA mortgage loan. The VA Lender’s Handbook includes rules for these types of transactions too, stating that in order to refinance a VA mortgage 30 days or more past due, the loan must first be submitted for approval.

Once that is accomplished, the loan to refinance a delinquent VA mortgage may also include late payments, late fees, and/or other approved costs from the old loan. The loan can include “reasonable costs if legal action to terminate the old loan has commenced.”

Not all participating lenders offer all VA home loan products. You will need to shop around for a lender who can help you with the specific type of home loan you need; in this case it is a VA-to-VA refinance loan also known as a VA Streamline or VA Interest Rate Reduction Refinance Loan.

Finding a participating lender isn’t the most challenging part; shopping around for the right lender who can offer you more competitive rates and terms can be the real issue so be sure to give yourself plenty of time to find the best participating VA lender for you.

{Sponsored} Veterans Can Buy a Home with $0 Down
The VA Home Loan offers $0 Down with no PMI. Find out if you’re eligible for this powerful home buying benefit. Prequalify today!

Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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VA Loan Delinquency Assistance For Veterans

by Heidi

VA loan delinquency assistance for veterans can help save a home in danger of being foreclosed upon. Missing a mortgage payment is a serious problem, but it’s also one that can be fixed long before a home winds up in the foreclosure process.

You do not have to deal with financial difficulties alone; help is available from both the lender and the Department of Veterans Affairs for those with VA mortgage loans to protect the home and save it from being foreclosed upon.

{Sponsored} Veterans Can Buy a Home with $0 Down
The VA Home Loan offers $0 Down with no PMI. Find out if you’re eligible for this powerful home buying benefit. Prequalify today!

VA Home Loan Mortgage Payment Requirements

A VA mortgage loan is like any other major line of credit; even though it is a military benefit, the payments must still be made on time. In cases where there may be a late or missed payment, it’s crucial that the borrower contact the lender as quickly as possible to make arrangements to avoid going into loan default.

You also have the option of discussing your needs with a VA loan technician for the most current advice and options. We’ll cover more about talking with a VA technician later in the article.

Veterans Who Need Financial Counseling To Avoid Foreclosure

Did you know the Department of Veterans Affairs pledges help for veterans and surviving spouses of veterans? You may be eligible for financial counseling and this may be offered to you even if your mortgage is not a VA home loan.

Furthermore, the VA official site reminds those who have a VA Direct Loan or a VA-guaranteed mortgage that borrowers may contact the VA anytime, “to request that we assign a VA Loan Technician to your loan.”

These VA technicians may be able to provide financial counseling and help borrowers work with their lenders to avoid foreclosure (see the phone number listed below).

Regardless of whether a borrower chooses to initiate such help on their own, the VA official site advises those with VA mortgages that after the loan becomes 61 days past due, a VA loan technician will be automatically assigned to your mortgage loan. Regardless, do not assume the VA will automatically try to reach out to you-it’s best to initiate the conversation yourself.

What Happens When You Miss A Payment?

No two lenders handle things exactly the same way, but we can look at the information offered by the Department of Housing and Urban Development on the subject of foreclosure avoidance to learn what happens in general once a borrower starts missing home loan payments.

36 Days Past Due

A participating VA lender may report a missed mortgage payment to the major credit reporting agencies as early as 36 days late.

Your credit may take a hit during this time, but a single missed payment is not as uncommon as you might think. Your loan officer may be able to work with you quickly to balance the books, so to speak, on your home loan. Do not hesitate to reach out to your lender at this time-you have the most flexible options open to you at this stage.

45 Days Past Due

This is a more serious late or missed payment situation and your options may start to be reduced at this stage. Your loan officer is required to make “live contact” with you at this point and you will start receiving contact from the lender about loss mitigation options. DO NOT DELAY making arrangements with the VA lender here-any later and you risk having fewer choices to save your home.

121 Days Past Due

Your lender has the option to refer the case to a foreclosure attorney at this point; do not let any more time go by without contacting the lender to make arrangements-your home is in serious jeopardy at this point and you will need to take decisive action to prevent foreclosure even if that means calling the lender to explain your situation and ask for advice because you don’t know what to do.

The lender will know what to do and how to help you. You will need what some in the home loan industry refer to as an “active loss mitigation package” to move forward from here, and you can only get that with the help of your lender.

Yes, you can call the Department of Veterans Affairs at this stage for advice and help, too…but make sure your lender is included in these arrangements even if that is simply to inform the financial institution that you are working on the problem with the VA. Always include the lender.

The Options You Have After Missing One Mortgage Payment Or More

There are several options depending on how severe late or missed payments are. In many cases you may be able to work out an arrangement with the lender to make up missed payments and get back on track with your mortgage.

This usually results in a repayment plan, sometimes it may involve a refinance loan that includes the missed mortgage payments, or other arrangements may be made.

One agreement is known as “special forbearance” and it essentially gives the borrower more time to make up the payments. In other cases, a loan modification may be required-this is not necessarily a full-blown refinance loan but it does add the missed payments back into your loan amount to help you get back on schedule with the payments.

The earlier you act once you fall behind, the more available these options above are to you. The longer you wait, the smaller your chances get to have the loan modified, get loan forbearance, etc.

Those who wait too long have much more limited options open to them including these as described on the VA official site:

Arranging A Private Sale: Some borrowers choose to sell the home instead of trying to catch up on missed payments. Making this arrangement requires the participation of the lender so you can delay the foreclosure proceedings in order to sell.

Arranging A Short Sale: Do you owe more on the property than it’s actually worth? Your loan officer may agree to a procedure known as a short sale.

In these situations, the lender agrees to “accept the total proceeds from the home sale” according to HUD 4000.1 even in cases where the sale results in getting less than the full amount owed on the mortgage loan. In these cases, the loan is considered paid in full.

Deed In Lieu Of Foreclosure: This requires the homeowner to sign the deed to the home over to the lender who takes ownership of the property at transaction time.

Talk To A VA Loan Technician For Help With Your VA Mortgage Or VA Direct Loan

The Department of Veterans Affairs offers help for borrowers to decide which of the above options including loan modification or forbearance all the way down to deed-in-lieu of foreclosure might be most appropriate.

You can discuss your situation with a VA Loan Technician at 1-877-827-3702.

{Sponsored} Veterans Can Buy a Home with $0 Down
The VA Home Loan offers $0 Down with no PMI. Find out if you’re eligible for this powerful home buying benefit. Prequalify today!

Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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