Tuesday, June 19, 2012

How Does the VA Determine How Much of a Home Loan They Will Guarantee

By Ann Johnson

In a VA loan the U.S. Department of Veterans Affairs does not provide loan funds, they guarantee a portion of the loan, enabling a qualifying applicant to obtain a VA Loan with little or no down payment, without paying private mortgage insurance (PMI). The VA Loan guarantees 25 percent of the maximum guaranty amount. The guaranty amount varies, according to county and average housing prices in each county.

A VA Loan does not limit how much a qualifying applicant can borrow. That is between the borrower and lender. Just like other loan types, the lender considers the borrower's credit scores and income. Yet, the VA does have a cap on how much it will insure. If a borrower wants to purchase a home that exceeds the cap, he may have to to put in additional funds.

In 2011, the maximum guarantee amount is 25 percent of $417,000. Yet, there are exceptions. Online at the U.S. Department of Veterans Affairs website, a four-page PDF file lists the counties and limits that exceed $417,000. For example, in San Francisco the guarantee maximum is $1,000,000. In New York City, the guarantee maximum is $735,000. These limits do not reflect what the borrower can borrow, but what the VA will guarantee 25 percent of.

Those areas where the maximum guaranty amount exceeds the annual limit are referred to high cost counties. These are cities where housing prices tend to be higher, such as in San Francisco, New York, Kodiak Island, Alaska, Honolulu or Nantucket, Massachusetts.

When calculating the amount to guarantee, the VA insures 25 percent of the purchase price or guarantee limit, whichever is less. For example, 25 percent of the maximum guarantee ($417,000) is $104,250. However, if the buyer is only purchasing a home costing $300,000, the VA Loan guarantees 25 percent of the $300,000, which is $75,000. If the applicant has already used some of her entitlement, the VA deducts that amount from the guarantee amount. For example, if the borrower in the previous example used $20,000 of her entitlement and it hasn't been restored, the amount the VA guarantee is $55,000 instead of $75,000. After restoring the entitlement, the VA would guarantee the $75,000. The entitlement is restored after the loan is paid.

United States veterans are not the only ones who may qualify for a VA Loan. Unmarried widows and widowers whose spouses died as a result of service duty, and spouses of military missing in action may also qualify for a VA Loan.


http://www.lenderva.com

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