In a manner very, similar to FHA loans, mortgages backed by the Veterans Administration tend to favor the buyer's interests. There are, however, certain differences between the FHA and VA programs.
While FHA loans are available to any qualified buyer, the VA program is restricted to certain individuals, typically those with military service. Depending on the era of service, specific qualifications vary. For those out of the service, 181 days of continous, active duty and an honorable discharge are enough to qualify.
To determine specifically if an individual is qualified it is necessary for the buyer to obtain form DD214 from the VA. With this form in hand an individual can then receive a "Certificate of Eligiblity." (For more information in the Washington area about this certification, call 872-1151.)
With a Va-qualified buyer there must be a VA-qualified house. This means the seller, or buyer, must obtain a VA appraisal, officially called a "Certificate of Reasonable Value." The cost for this appraisal is $70 and it can be ordered locally by calling 275-1356.
Unlike for FHA loans, there is no 0.5 per cent insurance premium in the VA program. On a $55,000 loan this will save the borrower approximately $20 monthly - $7,200 over the life of a 30-year mortgage.
The size of a VA loan is limited only by the financial condition of the borrower and the worth of the property. In contrast, the new maximum FHA loan is $60,000 for a single-family home,, $65,000 for a two or three family house and $75,000 for a four family home.
With the VA loan, no down payment is required. The FHA, however, uses a down payment schedule for a single-family house that includes 3 per cent for the first $25,000 and 5 per cent of the balance. For example, $2,500 down would be required for the purchase of a home with $60,000 FHA-backed loan.With an 8.5 per cent rate of interest, plus the FHA mortgage premium, the expense for principal and interest alone in this case would total $462.66 monthly.
For sellers, the VA appraisal does not state a certain value the buyer can withdraw from the deal. Both VA and FHA contracts can only "show one point. Sellers must either raise their prices to VA buyers or absorb the expense of points. Sellers may be required to make "reasonable" repairs for their homes to qualify for VA financing.
The VA and FHA programs each reduce the lender's risk by providing certain assurances that the loan will be repaid. What about the risk for the seller? Why should sellers be forced to subsidize the financing of the buyer through the use of points? In reality, all that happens is that veterans pay more for homes than they might through open negotation.
Both the VA and FHA concepts are fundamentally well-intentiones. Yet the nature of these federal programs may cause sellers to prefer other forms of financing. This is particulary the case for sellers who market a home in "as-is" condition.