The features and benefits of the VA home loan are so good, at least a 25% down payment and high FICO score are needed for a conventional loan to be comparable.
One of the best ways to leverage a VA loan is with 100% financing. The VA no longer imposes a maximum loan limit for 100% financing if you have full VA entitlement.
If you have never used your VA benefit, or if entitlement was fully restored after a previous VA loan was paid in full, then you could potentially purchase a home without any maximum loan amount.
*Note: many lenders have a maximum loan amount they will support with $0 down payment, such as $1.5M for example.
This means you can purchase a home for $800,000, $900,000 or even $1.5M or more without a down payment!
The only real stipulations now would be qualifying for the housing payment and locating a lender that does not set its own maximum VA loan limit (some lenders add “credit overlays” to VA guidelines as they see fit for their own underwriting guidelines).
What happens if you have an existing VA loan or lost some eligibility in the past?
If you have an existing VA loan outstanding or have part of your VA entitlement used due to a previous foreclosure, short sale, or loan assumption, then you will be limited to the Fannie Mae County loan limit of $1,149,825 in Hawaii minus the portion of your VA entitlement no longer available.
If you have an existing VA loan, the easiest way to figure this out would be to subtract the original loan amount for your existing VA loan from $1,149,825 and the result would be your remaining limit for 100% financing.
It is important to note that if you have refinanced with the VA Interest Rate Reduction Refinance loan since your original VA purchase, then the loan amount used for eligibility remains as the original loan amount at the time of purchase and not the new loan amount after completion of the refinance.
For example, if you were stationed on the mainland and used your VA eligibility to buy a home with a VA loan of $549,825, then you would still have eligibility remaining to use again on your next assignment, assuming you did not sell this home.
If you were re-assigned to Oahu, Hawaii, then you would have $600,000 remaining for 100% VA financing after subtracting the $549,825 of eligibility in use from the Honolulu County loan limit of $1,149,825.
There is no limit to the size of a VA loan, however, any purchase price that exceeds your remaining VA eligibility amount would require a down payment of 25% of the difference between that amount and the purchase price.
Referencing the example above, you would not be limited to a $600,000 purchase price. You can still purchase a home for $700,000, for example, but would need a down payment of 25% of the difference between the $600,000 remaining eligibility and the $700,000 sales price.
The $100,000 difference would result in a minimum down payment of $25,000 and you would have a $675,000 VA loan plus VA Funding Fee, if applicable.
If you do not have an existing VA loan but had a foreclosure, short sale, or loan assumption in the past, you could still qualify for a new VA loan. You would be limited to the County loan limit of $1,149,825 minus whatever entitlement was previously used.
If you have a VA Certificate of Eligibility (COE) handy showing the amount used for a previous foreclosure, short sale, or loan assumption, then multiply this number by FOUR to get the amount to subtract from $1,149,825 resulting in your 100% loan limit in Hawaii.
For example, if the COE shows prior use of $36,000, then multiple that by 4 to get $144,000. Then subtract $144,000 from $1,149,825 to get your new max 100% VA loan limit of $1,005,825.
Similar to Veterans with existing VA loans, you can buy a home with VA financing above your limit but would need a down payment of 25% of the difference between your max 100% loan amount and the purchase price.
What are the other advantages of the VA Home Loan?
No Private Mortgage Insurance (PMI) – one of the downsides to low and no money down programs is the required additional monthly expense of PMI to protect the lender in the case of your loan default.
With VA loans, there is no separate PMI payment required as the Veterans Administration guarantees a portion of the loan amount being borrowed.
Interest Rates are Typically Lower with VA Loans – generally, VA loan interest rates are lower than conventional loans and other types of financing potentially resulting in a lower monthly payment than other options.
Flexible Qualifying Guidelines – there are no rigid debt-to-income limitations with VA loans. Lenders are able to review your entire credit profile and make a decision to approve your VA loan by demonstrating you have sufficient income to cover the new mortgage payment along with other existing debts and living expenses.
Things You Need to Know About the VA Loan
When buying a home, your VA home loan can only be used to purchase your primary residence that you will occupy within 60 days of closing. As an owner occupant, you must live in the property for at least 12 months to satisfy this requirement.
There are exceptions to the 60 day move in requirement, for example, if you are deployed, your spouse may be able to satisfy this condition for you. Also, you may be able to depart your home within the 12-month owner occupancy period if you receive military orders or are required to relocate for other situations beyond your control.
VA loans are assumable. This means that you can assume another Veteran’s VA loan at the time you are purchasing a home and take over payments at their current interest rate and remaining loan term. Or, as a home seller, you can have a prospective buyer assume your VA loan at your interest rate and remaining term.
This is a great selling point if the market rates at the time you sell are significantly higher than the rate you have on your VA loan. This is a viable option in 2024 as the current VA interest rates are more than twice what they were at the beginning of 2022.
A civilian can assume a VA loan, but your VA entitlement would remain with the loan until it is paid in full. If a qualified Veteran assumes your VA loan, then your full VA eligibility can be restored to use again on a new home purchase.
VA loans can be used to purchase newly built or existing single-family homes and condominiums. The condition of the property must meet VA Minimum Property Requirements (MPRs). These MPRs are established to ensure that the property is structurally sound, safe, and sanitary.
Basically, if the property has some cosmetic issues, it should be satisfactory for VA financing. However, if it needs repair or has obvious signs of damage, these issues may have to be corrected prior to loan closing.
There are local requirements for VA loans by State so that you can do additional research as it relates to your specific locality.
Condominium projects (to include site CPR projects) must be approved by the Veterans Administration prior to closing on a condo in the project with a VA loan.
Once a condominium project is approved by the VA, it remains on the approved list until something warrants the suspension of the approval.
Significant litigation in the project or a serious structural defect could warrant the suspension of a VA condo approval. Most established condominium projects in Hawaii are already VA approved and can be verified on the VA Condo Search website.
If the condo is not VA approved, many Hawaii lenders will submit the necessary paperwork on your behalf to approve the condo for VA financing during your purchase transaction.
How is VA Loan Eligibility Determined?
Your eligibility is determined by your type of service, whether you served active duty, reserves, or national guard, your length of service, and your character of service. Here are the most common minimum eligibility requirements:
- Current active duty service members (since 2001) – 90 continuous days of active service.
- Veterans who served during peacetime – 181 continuous days of active service (prior to 2001) and discharged honorably.
- Veterans of WWII, Korean War, and Vietnam War – 90 total days of active service and discharged honorably.
- Reservists and National Guard members during the Gulf War – 90 days of active service and discharged honorably.
- Recent Reservists and National Guard members – six good years of service and either honorably discharged or continuing to serve in good conduct. Reservists or National Guard deployed on Title X Federal orders to OIF or OEF become eligible with 90 continuous days of active service.
- However, Reservists or National Guard activated under Title 32 State active duty time does not meet this requirement.
- Special circumstances – some service connected disabled veterans (who have not already met the requirements above) and spouses of deceased veterans may also be eligible.
Each VA approved mortgage lender can access your VA Certificate of Eligibility (COE) through the online VA lender portal to verify your eligibility.
You may also request a VA COE directly through the US Dept of Veterans Affairs in advance of your home purchase to be certain you are eligible. You may need a copy of your DD214 or Active Duty Statement of Service to verify your service.
How VA Loans Work
The US Dept of Veterans Affairs does not directly fund mortgage loans to Veterans. You apply for a VA home loan directly through a VA approved mortgage lender, bank, or credit union.
The VA’s role is to provide a guarantee to the mortgage lender for up to 25% of the loan amount in the unfortunate event of a loan default.
Your VA loan benefit does not expire, so you can use it at any time throughout your lifetime as long as you have remaining eligibility in the County in which you intend to purchase.
You can even use your VA home loan benefit on more than one property simultaneously as long as you have sufficient eligibility remaining for the additional purchase (as outlined earlier).
The maximum entitlement is based on the County where you are purchasing the property and for Oahu, the new 2024 County loan limit is $1,149,825. This limit, however, only applies if you do not currently have full VA entitlement.
If you sell or refinance the original residence that you purchased with VA financing, then your full VA eligibility can be restored so you can purchase a home WITHOUT ANY loan limit with 100% financing as long as you qualify for the total housing payment and can find a lender willing to go that high (most cap 100% financing at $1.5M).
The VA Funding Fee
This fee in included on most VA loans and is the fee the VA charges to guarantee your VA loan. The VA loan program is mainly funded by Veteran home buyers through collection of the VA funding fee at closing.
These funds are then pooled at the VA and used to offset lender loan losses as a result of VA foreclosures and short sales. The VA requires lenders to collect this fee directly from you as a closing cost or it can be financed into your new VA loan (most common).
The dollar amount of the VA funding fee is calculated as a percentage of the loan amount and depends on several factors, such as your type of service, the down payment amount, and whether or not you have previously used your VA benefit.
The VA Funding Fees have recently been aligned so that they are the same whether you were Active Duty, Guard or Reservist for your VA qualification.
Here is the chart reflecting the current VA funding fees for all VA loans:
For example, if you are buying a home at $500,000 with 100% VA financing, are an active duty member or Veteran and using your VA benefit for the first time, the VA funding fee would be 2.15% ($10,750).
If you chose to finance the VA funding fee into the loan, which is what most Veterans do, then your total loan amount for your home purchase would be $510,750. The property must appraise for the sales price of $500,000 to do 100% financing as the VA funding fee is financed above the sales price/appraised value.
The VA funding fee can be waived entirely. The most common is for all Veterans who receive service-connected VA disability compensation and all others who have at least a 10% VA Disability rating. If the VA funding fee is waived, it is indicated on your VA Certificate of Eligibility.
Purple Heart recipients are exempt from the VA funding fee. To document this, provide a certificate or military orders to evidence the receipt of the Purple Heart.
Refinancing a VA Home Loan
The VA makes available an excellent refinance program called the VA Interest Rate Reduction Refinance Loan (IRRRL).
If you have an existing VA loan, you may be able to take advantage of this streamlined refinance program in order to reduce your interest rate without an appraisal or any income or asset documentation.
The VA requires that you have made at least 7 payments on your loan to refinance with an IRRRL.
It only makes sense to refinance if the current VA mortgage rates are low enough to reduce your payment enough to recover ALL of the costs associated with the refinance within 36 months (to include the pre-paid items such as property taxes and insurance).
There is a 0.5% VA funding fee you would have to pay in this refinance type (unless you are eligible to have the funding fee waived) but it can be financed into your new loan.
You can refinance to convert an Adjustable Rate Mortgage (ARM) into a 15 or 30 year fixed rate loan. You do not need to reduce the interest rate or payment as you are converting from an adjustable rate loan to a fixed loan, which is more secure long term.
You do not need to be occupying the home as your primary residence in order to take advantage of the IRRRL but the interest rate may be a little higher than if you were currently occupying the home.
The VA also offers a “Cash-Out” refinance option which allows you to access available equity in your home to consolidate debt, pay tuition or student loans, make home improvements, or purchase another home.
You may borrow up to 90% of the appraised value of your home with this refinance. This is not a streamlined refinance and requires a new appraisal, full income and asset documentation, and the VA funding fee is based on subsequent use percentage and not the lower 0.5% IRRRL percentage.
You must occupy the property as your primary residence and be able to occupy the property as your primary residence for at least 12 months after closing for this refinance type.
Closing Thoughts
I utilized the VA home loan benefit to buy my first home in Hawaii as an Active Duty Army Captain more than 20 years ago. It was a daunting experience as a first-time homebuyer since the Military provided very little information about the features and benefits of the VA home loan program at the time.
It was comforting, though, that the lender I selected guided me to make informed decisions about my new VA loan and home purchase. It was a smooth and enjoyable experience for me because of this knowledgeable guidance.
I later entered the mortgage lending business and have now been originating VA loans for over 20 years and hope to impart beneficial information to you to help you on your journey to home ownership in Hawaii.
If you have questions about any of the information above or would like to learn even more about VA financing and how it may benefit you and your family, please feel free to reach out to me anytime.
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