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VA home loan questions

Nice two story home with a sold sign23. Can a VA loan be used for a vacation home?

Unfortunately, the VA home loan program is only permitted for owner occupied principal residences. See eligible properties

24. Can a VA loan be used to build a house?

The Veteran's Administration allows for the construction of a new home.

25. Can I get a VA loan if I had a foreclosure?

Once again, the lender will decide whether to offer a mortgage with a past foreclosure, however, here is the VA's position on obtaining a VA loan after a foreclosure:

The presence of a house loan foreclosure (or deed-in-lieu of foreclosure) in an applicant's (or spouse's) credit history does not automatically render the loan ineligible.

Create comprehensive information on the foreclosure facts and circumstances.

Apply the rules for bankruptcies filed under the direct liquidation and discharge provisions of the bankruptcy code.

See "Bankruptcy" under the preceding section.

If a VA loan was foreclosed on, the applicant may not be able to get the full entitlement for the new loan.

Check to see whether the applicant's Certificate of Eligibility demonstrates adequate eligibility to meet the lender's secondary marketing criterion.

Source: VA Pamphlet 26 - 7, Revised Chapter 4: Credit Underwriting

26. Can the seller pay all closing costs on a VA loan?

The seller may pay all ALLOWABLE closing expenses on behalf of the veteran borrower.
Typical closing costs include an origination fee, an appraisal fee (paid by the vet at the time of application and reimbursed at settlement), title insurance and other title costs, discount points (if applicable), a credit report (paid by the vet at the time of application and reimbursed at settlement), well, septic, and termite inspection fees (if applicable), flood certification, and so on.
Allowable closing expenses are usually any expenditures that are conventional to the location of the house and are paid to a third party as part of the settlement process.

The lender may charge the veteran a flat charge not to exceed one percent of the loan amount (origination fee).

The expenses listed below cannot be charged to the veteran as “itemized fees and charges.” Instead, the lender must pay any expenses associated with these things as part of its flat-fee (Non-allowable closing costs are):

  • Schedules of amortization, pass books, and membership or entry fees,
  • Other than title work, an attorney's services
  • Any secondary purchaser's commitment costs or marketing expenses
  • mortgage, as well as the preparation and documentation of the assignment,
  • fees for document preparation,
  • fees or costs for escrow,
  • Costs paid by loan brokers, finders, or other third parties, whether or not they are connected with the lender, as well as fees for the production of a truth-in-lending disclosure statement
  • Fees for interest rate lock-in,
  • appraisals by lenders,
  • Except in the event of a construction loan, lender inspections
  • Fees for loan application or processing
  • Fees for loan closings or settlements,
  • mortgage notary costs to such purchaser,
  • photographs,
  • Postage and other postal costs, stationery, phone calls, and other expenses
  • completing loan documents or paying conveyancing costs,
  • tax service charges,
  • Fees or levies levied by the trustee,

The house seller may pay all authorized closing expenses on the veteran's behalf... period. Even if the allowed closing expenses are more than 4%.
The 4% rule is designed to restrict the following inducements to buy a home:

The following are examples of seller concessions, although they are not exhaustive:

Prepayment of the buyer's property taxes and insurance presents such as a television set or microwave oven

Payment of bonus points in order to offer permanent interest rate reductions

Escrowed funds are used to offer interim interest rate reductions and to pay off credit amounts or judgements on behalf of the buyer.

Seller concessions do not include the payment of the buyer's closing expenses or the payment of market-appropriate points.

The house seller may pay up to 4% of the sales price for real estate tax escrow and proration expenses.

When calculating whether concessions exceed the four percent limit, exclude regular discount points and payment of the buyer's closing expenses from total concessions.

Source: Seller Concessions - Chapter8.PDF

27. Can the VA funding fee be rolled into the loan?

The funding fee is allowed to be financed. See VA funding fee table

28. Do I have to escrow my property taxes with a VA loan?

The VA does not require the home buyer/homeowner to escrow the property taxes and homeowner's insurance, however, it's the lender who is lending the money, and the lender can require a tax and insurance escrow. Source: Chapter 9: Escrows for taxes and insurance


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