Kristine Baugh's Home Spot: April 2016

The VA Loan is a well-desered benefit for our veterans. Through this program, veterans can purchase a home with no down payment, potentially saving tens of thousands of dollars in out-of-pocket expenses at closing.

If you are a veteran who's shopping for a home, it’s important that you and your real estate broker be familiar the guidelines for VA loans. Your VA lender will be the final say on what is allowable under the program, but you should know a few things before looking at properties or negotiating a contract that involves a VA loan.

Closing Costs and Earnest Money

A "zero down" loan means no down payment. It doesn't mean there are no costs associated with the home purchase. There will be closing costs and prepaid expenses payable at closing, plus an earnest money deposit will likely be required upon execution of a contract to buy the home.

Typically earnest money is equal to or greater than 1% of the purchase price of the property. In a seller’s market, expect higher earnest money deposit requirements.

What about closing costs? Here's what's allowed for VA loans:

1% origination fee charged by the lender
Appraisal and Compliance Inspections
Recording Fees
Credit Report
Prepaid Items
Hazard Insurance
Flood Zone Determination
Survey
Title Examination and Title Insurance
Special Mailing Fees for Refinancing Loans
VA Funding Fee
Mortgage Electronic Registration System (MERS) Fee
Other Fees Authorized by VA

A veteran should be prepared to have enough cash on hand to cover an earnest money deposit and a few thousand dollars in closing costs/prepaid expenses. The earnest money will be credited toward closing cost expenses at closing. If your earnest money deposit was greater than the amount of your closing costs, the balance will be refunded to you at closing.

The buyer and seller can negotiate that the seller will pay all or some of the closing costs, but that amount is limited to a maximum of 4% of the sale price.

Loan Limits

The VA does not set a cap on how much you can borrow to finance your home. However, there are limits on the amount of liability the VA can assume, which usually affects the amount of money an institution will lend you. The loan limits are the amount a qualified veteran with full entitlement may be able to borrow without making a down payment. These loan limits vary by county, since the value of a house depends in part on its location.

The basic entitlement available to each eligible Veteran is $36,000. Lenders will generally loan up to 4 times a Veteran's available entitlement without a down payment, provided the Veteran is income and credit qualified and the property appraises for the asking price.

Your lender should discuss all this with you during your loan approval process.

What about Condos?

The VA’s goal is to help protect the interests of veterans and the government by ensuring that all properties located in a common interest community meet VA regulatory requirements. Meeting this goal as efficiently and cost effectively as possible serves the best interests of all program participants involved.

Because condominiums often provide affordable home ownership, they are a popular choice with veterans. If a veteran is interested in purchasing a condo, the veteran and his/her broker should focus their search on VA approved condominium communities only. The VA website contains a searchable database of approved condos.

While only condominiums must be approved by VA, lots or units securing VA loans in condominiums and other planned unit developments must meet both title and lien-related VA regulatory requirements. The lender is responsible for ensuring that these requirements are met for each VA loan. Although there is no specific VA requirement that lenders maintain evidence in the loan file that these requirements are met, they may wish to be guided by the advice of their legal counsel in this regard.