More than 29 million veterans and service personnel are eligible for a va loan. Even though many veterans have already used their loan benefits, it may be possible for them to buy homes again with VA financing using remaining or restored loan entitlement.

Before arranging for a new mortgage to finance a home purchase, veterans should consider some of the advantages of VA Home Loans:

• The most important consideration, no down payment is required in most cases.
• Loan maximum up to 100 percent of the VA established reasonable value of the property. Due to secondary market requirements, however, loans generally may not exceed $203,000.
• Flexibility of negotiating interest rates with the lender.
• No monthly mortgage insurance premium to pay.
• Limitation on buyer’s closing costs.
• An appraisal which informs the buyer of property value
• Thirty year loans with a choice of repayment plans:
  • Traditional Fixed Payment– constant principal and interest; increases or decreases may be expected in property taxes and homeowner’s insurance coverage
  • Graduated Payment Mortgage (GPM)– low initial payments which gradually rise to a level payment starting in the sixth year and
  • In some areas, Growing Equity Mortgages (GEMs)– gradually increasing payments with all of the increase applied to principal, resulting in an early payoff of the loan.
• For most loans for new houses, construction inspected at appropriate stages to ensure compliance with the approved plans, and a 1-year warranty is required from the builder that the house is built in conformity with the approved plans and specifications. In those cases where the builder provides an acceptable 10-year warranty plan, only a final inspection may be required.
• An assumable mortgage, subject to VA approval of the assumer’s credit.
• Right to prepay loan without penalty.
• VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties.

WHAT IS A VA GUARANTEED LOAN?

These loans are made by a lender, such as a mortgage company, savings and loan or bank. VA’s guaranty on the loan protects the lender against loss if the payments are not made and is intended to encourage lenders to offer veterans loans with more favorable terms.

The amount of guaranty on the loan depends on the loan amount and whether the veteran previously used some entitlement. With the current maximum guaranty, a veteran who hasn’t previously used the benefit may be able to obtain a VA loan up to $203,000 depending on the borrower’s income level and the appraised value of the property. The local VA office can provide more details on guaranty and entitlement amounts.

WHO IS ELIGIBLE?

• Veterans with active duty service, that was not dishonorable, during World War II and later periods are eligible for VA loan benefits.
• World War II (September 16, 1940 to July 25, 1947), Korean Conflict (June 27, 1950 to January 31, 1955), and Vietnam era (August 5, 1964 to May 7, 1975) veterans must have at least 90 days’ service. Veterans with service only during peacetime periods and active duty military personnel must have had more than 180 days’ active service.
• Veterans of enlisted service which began after September 7, 1980 or officers with service beginning after October 16, 1981 must in most cases have served at least 2 years.
• Persian Gulf Conflict. Basically, reservists and National Guard members who were activated on or after August 2, 1990, served at least 90 days and were discharged honorably are eligible. VA regional office personnel may assist with eligibility questions.
• Members of the Selected Reserve, including National Guard, who are not otherwise eligible and who have completed 6 years of service and have been honorably discharged or have completed 6 years of service and are still serving may be eligible. The expanded eligibility for Reserves and National Guard individuals will expire October 28, 1999. Contact the local VA office to find out what is needed to establish eligibility. Reservists will pay a slightly higher funding fee than regular veterans. (See paragraph entitled “Costs of Obtaining a VA Loan”).

WHAT CAN A VA LOAN BE USED FOR?

• To buy a home, including townhouse or condominium unit, in a VA approved project.
• To build a home.
• To simultaneously purchase and improve a home.
• To improve a home by installing energy-related features such as solar or heating/cooling systems, water heaters, insulation, weather-stripping/ caulking, storm windows/doors or other energy efficient improvements approved by the lender and VA. These features may be added with the purchase of an existing dwelling or by refinancing a home owned and occupied by the veteran. A loan can be increased up to $3,000 based on documented costs or up to $6,000 if the increase in the mortgage payment is offset by the expected reduction in utility costs. A refinancing loan may not exceed 90 percent of the appraised value plus the costs of the improvements. Check with a lender or VA for details.
• To refinance an existing home loan up to 90 percent of the VA-established reasonable value or to refinance an existing VA loan to reduce the interest rate.
• To buy a manufactured home and/or lot.

WHY A VA LOAN?

The more you know about our home loan program, the more you will realize how little “red tape” there really is in getting a VA loan. These loans are often made without any down payment at all and frequently offer lower interest rates than ordinarily available with other kinds of loans. Aside from the veteran’s certificate of eligibility and the VA-assigned appraisal, the application process is not much different than any other type of mortgage loan. And if the lender is approved for automatic processing, as more and more lenders are now, a buyer’s loan can be processed and closed by the lender without waiting for VA’s approval of the credit application.

Additionally, if the lender is approved under VA’s Lender Appraisal Processing Program (LAPP), the lender may review the appraisal completed by a VA-assigned appraiser and close the loan on the basis of that review. The LAPP process can further speed the time to loan closing.

FIVE EASY STEPS TO A VA LOAN

1. Apply for a Certificate of Eligibility. A veteran who doesn’t have a certificate can obtain one easily by making application on VA Form 26-1880, Request for Determination of Eligibility and Available Loan Guaranty Entitlement, to the local VA office.
2. Decide on a home the buyer wants to purchase and sign a purchase agreement.
3. Order an appraisal from VA. Usually this is done by the lender. Most VA regional offices offer a “speed-up” telephone appraisal system. Call the local VA office for details.
4. Apply to a mortgage lender for the loan. While the appraisal is being done, the lender (mortgage company, savings and loan, bank, etc.) can be gathering credit and income information. If the lender is authorized by VA to do automatic processing, upon receipt of the VA or LAPP appraised value determination, the loan can be approved and closed without waiting for VA’s review of the credit application. For loans that must first be approved by VA, the lender will send the application to the local VA office which will notify the lender of its decision.
5. Close the loan and the buyer moves in.

Lately a number of reverse mortgage companies have lowered down their initiation charges significantly and some have even been offering cash incentives by covering the mortgage insurance fees associated with a reverse mortgage.

The companies are keen to provide the borrowers who qualify some given criteria in these tough economical times. The upfront charge that was levied was the most criticized aspect that seniors had up until now.

With many reverse mortgage companies reducing or in some cases eliminating upfront fees it becomes very important for the borrower to weigh the pros and cons of every offer in detail. Some companies who do not claim their upfront fees will charge a higher interest rate or offer less loan equity. Other companies may just decrease fees but offer a much more attractive interest rate linked with the reverse mortgage loan.

The FHA Modernization Act of 2008 has laid down a new single national loan limit for reverse mortgages up from $271,050 to $417,000. This modification up from $271,050 opened new avenues for seniors with homes valued higher than $271,050 to take benefit of this plan. Moreover, at least through the end of 2010, this limit will be provisionally increased to $625,500, which is an added advantage for seniors whose home values go beyond the present national limit of $417,000.

An additional benefit for the consumers is present in the HUD-set limits on reverse mortgage initiation fees. Earlier, this fee was 2 percent of the maximum claim figure. The Modernization Act reduced it to 2 percent of the first $200,000 and 1 percent of any amount exceeding that, with a minimum of $2,500 and a maximum of $6,000 is what can be charged by the lender.

If you have taken a reverse mortgage before these changes took place, you may just want to consider refinancing so that you can take the advantage of the savings. For this the lender has to document a sufficient “benefit to borrower” to grant a reverse-to-reverse refinance, but this can be done easily enough.

Generally, the counseling requirement is waived if the refinance has been within five years of the original transaction.

A reverse mortgage loan can be of immense help to the senior citizens since if you need any help after retirement to help you pay your monthly bills and you have a lot of equity in your home then a reverse mortgage as an alternative of just another home mortgage may be just what you are looking for.

Identity thieves are now preying on homeowners who have significant equity in their homes. As per a report from the Identity Theft Assistance Center, a non-profit industry group, identity thieves are targeting individuals with good credit because such people often have large untapped home equity.
HELOC or home equity line of credit is almost as easy to open as a credit card account which explains why it’s an ideal vehicle for the fraudsters who have proper financial information of the victim. In a typical scheme, the con artists use stolen identification to apply online for a line of credit. Then they request the bank to wire the funds to their accounts, providing their own contact information and the bank unknowingly calls the perpetrator to verify the fund transfer.
One can’t deny the fact that credit lines like HELOC are typically “big pools of money” and if consumers are not using the account and also do not regularly check it then without their knowledge and consent the pool can drain quickly. The worst scenario can be the con artist selling the home without the knowledge of the homeowner.
Though there is a glimpse of light for such victims – they can get back the money by the lender if a bank investigation confirms fraud. However, lawyers who represent victims of identity theft said such solutions do not often come easily.

Now, HUD requires agencies to provide potential Home Equity Conversion Mortgage (HECM) borrowers with an information packet prior to the counseling session and, also, it is important to give the client enough time to go through the information packet and jot down his/her queries. The packet can be sent via:

1. regular mail
2. priority mail
3. fax
4. email

The packet must include

1. “Preparing for Your Counseling Session”
2. Printout of loan comparisons
3. Printout of total Annual Loan Cost (TALC)
4. Loan amortization schedule
5. “Use Your Home to Stay at Home – A Guide for Homeowners Who Need Help Now” – a National Council on Aging (NCOA) booklet

It is also important for the counselors to educate the prospective borrowers about how to stay away from reverse mortgage scams. HUD requires the counselors to discuss about:

1. Potential mortgage fraud
2. Standard ways in which the borrower can use his/her loan proceeds
3. Reporting predatory lending practices to concerned authorities
4. Do not sign anything sent to you by your reverse mortgage lender without fully understanding it and its legal ramifications

Now, let’s take a look at the most important issue which deals with issuing the certificate of counseling. Issuing a certificate does not indicate the counseling agency recommends or disapproves a borrower for reverse mortgage.
A counselor must withhold the certificate of counseling if he/she believes that the potential borrower does not have the basic understanding of reverse mortgage and its pros and cons. New guidelines state that borrowers must be asked ten review questions (provided in the protocol) about reverse mortgages and how taking the loan will affect their specific situation. A counseling agency must withhold the certificate when the borrower can’t answer five of the ten review questions correctly during the first session. The agency must then offer four alternatives to the potential borrower in order to help him/her comprehend reverse mortgages. If all the options are exhausted and the borrower is still not able to answer five out of ten questions correctly then the counselor must offer additional time to the borrower to

One very important consideration for prospective reverse mortgage borrowers is by taking out a reverse mortgage, you will be using up part or all of an asset, that might otherwise be left to children or other heirs. Since the interest that you will incur on the loan is actually added to the balance of the reverse mortgage against your property, your equity is usually eroding (unless the value of the home is increasing at a rapid rate), and there will be less equity available when the lender actually sells the property.

Older homeowners who are very concerned with leaving their home to their children or other heirs will want to take a long look at these implications before moving forward with a reverse mortgage.

If you have a current forward/ traditional mortgage, and you are eligible for a reverse mortgage, the proceeds of the reverse mortgage will first be used to pay off that balance. So make sure this is included in your calculation for how much cash you will receive — your cash will be reduced by the amount of the existing mortgage, as the lender will be required to pay that loan off prior to dispersing any other cash.

Another consideration for potential reverse mortgage borrowers is to be cautious about who they get their reverse mortgage advice from, and ultimately which lender they choose. While a lot has been done in the last five years to prevent fraud and other abuses against older homeowners through reverse mortgages their still remains a risk and potential borrowers need to be thorough in their research and confident in their decisions.

A reverse mortgage can be just the right loan for many homeowners, but it is not suitable for all homeowners. And remember, the proceeds of your reverse mortgage do not need to be used in any particular way — as the borrower, they are yours and yours alone, to be used for home improvements, to pay bills, to invest or even to use for a vacation. We advise you to be conservative in how you use the proceeds of your loan.

Right situation, right loan. If you are eligible for a reverse mortgage loan and you have a near-term or even, longer-term “need” for the cash, then a reverse mortgage will likely make sense. However, make sure that you consider all the benefits, consequences, risks, and rules before signing your loan.

You will never need to leave your home once you get a reverse mortgage, unless you choose to do so. Even if you “out live” your loan, the lender will not be able to take the home or force you to leave. So is reverse mortgage a good idea for you? Weigh your options and do the math. It just may be.

A reverse mortgage is a unique mortgage because they are no payments required from the borrower. Instead the homeowner receives cash from the lender and in turn, the lender receives a portion of the homeowner’s equity. A reverse mortgage loan is designed to give older homeowners the ability to receive tax-free income without having to make payments, sell their home or affect their hold on their title. For older homeowners (must be 62 years or older to qualify) a reverse mortgage can be the right way to receive either extra income or security in retirement.

The loan is repaid when the borrower ceases to live in the home; this can be a result of the homeowner selling the home, moving out (and it is no longer their primary residence), or passing away. In any of these cases, the lender receives the proceeds of the sale of the home to pay off the balance of the reverse mortgage loan. If the proceeds of the sale exceed the outstanding loan balance, the difference is paid back to the borrower or to their estate.

Another unique aspect of the reverse mortgage is the counseling required for all prospective borrowers considering a reverse mortgage loan. All lenders are required by law to provide this counseling to insure that the homeowner is aware of all the terms and conditions of the loan, and that they and their support group has closely considered whether or not a reverse mortgage loan is right for them.

Reverse mortgages can be taken either as a line of credit or as a lump sum. There are actually more options to consider, but your reverse mortgage lender will be able to talk you through all of these options. As a prospective borrower, you should first consider how you will use the proceeds and whether it makes sense to receive the cash over time or all at once.

The reverse mortgage industry is heavily supported by HUD (US Department of Housing and Urban Development) and the heavy majority of reverse mortgage loans are insured by HUD’s Federal Housing Administration (FHA). The FHA product, called the Home Equity Conversion Mortgage, or HECM, is the dominant product in the market and the support that the FHA provided to the reverse mortgage market is another benefit for potential borrowers. The FHA provides heavy oversight and regulation, and the absence of private reverse mortgage products has kept the costs and overall expense of reverse mortgages in reasonable check.

However, fees on a reverse mortgage are generally higher than traditional mortgages, and therefore, you want to make sure that you’ll be in your home for at least a few years to avoid throwing away money on a loan on which you’ll never realize the benefits.