VA loan questions and answers
VA home loans do not have PMI. PMI is an abbreviation for private mortgage insurance. The VA requires a funding fee to be paid at settlement or financed with the loan. Disabled vets are not required to pay the funding fee. The funding fee percentage (cost) is based on the type of service. See VA funding chart below. No monthly fee is required with VA home loans (PMI).
29. Do I have to have a down payment with a VA loan?
The VA does not require veterans to have a down payment on a VA mortgage, however, the lender may require a down payment if the VA guarantee is less than 25%. The VA "guarantees" 25% of the mortgage in the event of a foreclosure. The VA uses a formula/worksheet to determine whether the loan will provide a 25% guarantee. Large loan amounts may require a down payment.
30. Do I have to pay mortgage insurance on a VA loan?
There is no monthly mortgage insurance on a VA loan. There is a funding fee that is paid in full at settlement or financed with the loan. Veterans who are at least 10% disabled are exempt from the funding fee. Purple Heart recipients are also exempt from the funding fee. Here are the new funding fee percentages as of January 1, 2020:
| Military Service | Down payment | First-time Use | Re- Use |
|---|---|---|---|
| Active Duty, Reserves, and National Guard | None | 2.30% | 3.60 % |
| 5% or more | 1.65% | 1.65% | |
| 10% or more | 1.40% | 1.40% |
| Cash-Out/Regular Refinance Loan | ||
|---|---|---|
| Military Service | First-Time Use | Re-Use |
| Active Duty**, Reserves, and National Guard | 2.30% | 3.60 % |
31. How is the VA funding fee calculated?
Here's how the funding fee cost is calculated:
| Sales Price | Less Down Payment | Base Mortgage | X Funding Fee | Funding Fee |
|---|---|---|---|---|
| $100,000 | - 0 - | $100,000 | X 2.30% | $2,300 |
32. Do I need a home inspection for a VA loan?
The VA does not require a home inspection, although, the VA encourages home buyers to obtain a home inspection. The VA appraiser is responsible for determining whether the property meets the VA's minimum property requirements. The appraisal is not a home inspection, but a reasonable evaluation of the home. If the appraiser perceives a problem with the home (i.e. roof, furnace, structural), the appraiser will recommend an examination by a professional.
33. Do VA loans have a lower interest rate?
VA home loan interest rates tend to be lower than conventional loan rates. The reason is due to the VA backing of the government loan. See today's VA interest rates
34. Do VA loans have closing costs?
VA home loans have closing costs like other mortgages. Closing costs include title insurance, state transfer, and mortgage taxes (if applicable), settlement fees, and lender fees. Fortunately, the Veteran's Administration prohibits a variety of fees that can be charged to the vet. See the list of non-allowable closing costs
35. Do VA loans have prepayment penalties?
Prepayment penalties are prohibited with VA home loans.
36. Do VA loans require an appraisal?
Appraisals are required by the Veteran's Administration. After all, the house is the collateral for the loan.
37. Does a seller have to pay closing costs on a VA loan?
Home sellers are not required to pay the veteran’s closing costs (except the pest inspection, in most states). Seller-paid closing costs (seller assist), can be negotiated between the veteran and home seller.
38. Do VA loans require escrow?
The Veteran's Administration does not require escrow accounts (taxes and insurance), however, it's the lender that makes the loan to the vet and the lender can require an escrow account as a condition for the loan. The VA establishes minimum standards for a VA home loan, however, the lender is allowed to pile on.
39. Does the VA have loan limits?
The Veteran's Administration does not limit the mortgage amount, but the lender can limit the amount the vet can borrow. The borrowing limit can be based on the debt to income ratio or the loan limit set by the Federal Housing Finance Agency. Each year the Federal Housing Finance Agency establishes the lending limits for the FHA and Fannie Mae (Federal National Mortgage Association). The VA uses the FHFA lending limits to determine the maximum guarantee to the lender.
40. How does a VA jumbo loan work?
VA loans that exceed the Fannie Mae conforming loan limit for the county where the home is located are known as jumbo VA loans. Jumbo loans may require a down payment if the loan does not meet the 25% lender guarantee. Use the VA loan calculator to estimate the down payment (if applicable) and loan guarantee.
41. How much can I afford for a VA home loan?
This is an intriguing topic since the amount a veteran may borrow is determined by the borrower's salary and monthly debt... as well as the location of the property.
The VA requires lenders to apply the conventional debt-to-income computation to assess if the mortgage payment plus monthly obligations are 41% (or less) of the monthly gross income.
The Veteran's Administration, on the other hand, takes a step further.
The lender must also evaluate if the veteran will have enough money after settlement to cover utilities and other costs. The amount of net income that remains after deducting debts and commitments and monthly shelter costs to meet family living needs such as food, health care, clothes, and fuel is referred to as residual income.
The following are the VA residual income tables:
| Table of Residual Incomes by Region For loan amounts of $79,999 and below | ||||
|---|---|---|---|---|
| Family Size | Northeast | Midwest | South | West |
| 1 | $390 | $382 | $382 | $425 |
| 2 | $654 | $641 | $641 | $713 |
| 3 | $788 | $772 | $772 | $859 |
| 4 | $888 | $868 | $868 | $967 |
| 5 | $921 | $902 | $902 | $1,004 |
| over 5 | Add $75 for each additional member up to a family of seven. | |||
| Table of Residual Incomes by Region For loan amounts of $80,000 and above | ||||
|---|---|---|---|---|
| Family Size | Northeast | Midwest | South | West |
| 1 | $450 | $441 | $441 | $491 |
| 2 | $755 | $738 | $738 | $823 |
| 3 | $909 | $889 | $889 | $990 |
| 4 | $1,025 | $1,003 | $1,003 | $1,117 |
| 5 | $1,062 | $1,039 | $1,039 | $1,158 |
| over 5 | Add $80 for each additional member up to a family of seven | |||
| Key to Geographic Regions Used in the Preceding Tables | |||
|---|---|---|---|
| Northeast | Connecticut, Maine, Massachusetts | New Hampshire, New Jersey, New York | Pennsylvania, Rhode Island, Vermont |
| Midwest | Illinois, Indiana, Iowa, Kansas | Michigan, Minnesota, Missouri, Nebraska | North Dakota, Ohio, South Dakota, Wisconsin |
| South | Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia | Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma | Puerto Rico, South Carolina, Tennessee, Texas, Virginia, West Virginia |
| West | Alaska, Arizona, California, Colorado | Hawaii, Idaho, Montana, Nevada | New Mexico, Oregon, Utah, Washington, Wyoming |
Estimating the maximum loan amount is complicated with VA loans. A well-experienced loan officer should be able to determine the maximum loan amount.
42. How much is PMI on a VA loan?
PMI (private mortgage insurance) is not required on a VA home loan. There is a VA funding fee that is paid in full at closing or financed with the loan.
