Can I get a VA loan if I have had a bankruptcy in the last few years?
VA credit standards state that a veteran with a bankruptcy less than 3 years ago
would generally not be considered a satisfactory credit risk unless: the veteran
or spouse has obtained items on credit since the bankruptcy and has paid the obligations
in a satisfactory manner for a continued period; and the bankruptcy was caused by
circumstances beyond the control of the borrower, which would have to be verified.
A bankruptcy discharged 3 to 5 years ago must be given some consideration in the
underwriting of the loan. A bankruptcy discharged more than 5 years ago may be disregarded.
These are the minimum standards that mortgage companies must follow when making
a VA loan. In 95% of the cases, companies make the decision to approve a loan without
VA's prior approval. Keep in mind that mortgage companies also have money at risk
in giving you a VA loan, so they may have stricter credit standards than those mandated
by VA.
How large of a loan can I get? If my guaranty entitlement is $36,000, does this mean
I am limited to a $36,000 loan?
VA guaranteed loans are made by private lenders, such as banks, savings & loans
or mortgage companies to eligible veterans for the purchase of a home which must
be for their own personal occupancy. To get a loan, a veteran must apply to a lender.
If the loan is approved, VA will guarantee a portion of it to the lender. This guaranty
protects the lender against loss up to the amount guaranteed and allows a veteran
to obtain favorable financing terms. There is no maximum VA loan but lenders will
generally limit VA loans to $417,000. This is because lenders sell VA loans
in the secondary market, which currently places a $417,000 limit on the loans. For
loans up to this amount, it is usually possible for qualified veterans to obtain
no down payment financing. A veteran's basic entitlement is $36,000 (or up to $104,250
for certain loans over $144,000). 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.
Why do I have to pay a fee for a VA home loan? Since I paid a fee for my first loan,
why is there a larger fee for my second loan?
The VA funding fee is required by law. The fee, currently 2.15 percent on no down
payment loans, is intended to enable the veteran who obtains a VA home loan to contribute
toward the cost of this benefit, and thereby reduce the cost to taxpayers. The funding
fee for second time users who do not make a down payment is 3.3 percent. The idea
of a higher fee for second time use is based on the fact that these veterans have
already had a chance to use the benefit once, and also that prior users have had
time to accumulate equity or save money towards a down payment. All second time
users who make a down payment of at least 5 percent pay a reduced funding fee of
1.5 percent, which is the same percentage as first time users making the same down
payment. For a 10 percent down payment, the fee drops to 1.25 percent. The effect
of the funding fee on a veteran's financial situation is minimized since the fee
may be financed in the loan.
May a veteran join with a non veteran who is not his or her spouse in obtaining a
VA loan?
Yes, but the guaranty is based only on the veteran's portion of the loan. The guaranty
cannot cover the non veteran's part of the loan. Consult mortgage companies to determine
whether they would be willing to accept applications for joint loans of this type.
Mortgage companies that are willing to make these types of loans will likely require
a down payment to cover risk on the non guaranteed, non veteran's portion of the
loan. Unlike other loans, the mortgage company must submit joint loans to VA for
approval before they are made. Both incomes can be used to qualify for the loan.
However, the veteran's income must be sufficient to repay at least that portion
of the loan related to the veteran's interest in (portion of) the property and the
non veteran's income adequate to cover the rest.
