- - Thursday, June 9, 2011

The subprime mortgage market is largely extinct, and this probably is a good thing. Partially filling the void left by subprime loans are Federal Housing Administration (FHA) loans and Veterans Affairs (VA) loans. Last week, I discussed features and advantages of FHA mortgages. This week, I’d like to talk about VA loans.

Eligible active-duty service members and veterans can take advantage of a VA mortgage loan. The best feature of a VA loan is that a down payment is not required. This is ideal for young people who have promising careers in the military but have yet to save for a down payment.

Other benefits to taking out a VA loan include:

  • Competitive 30-year and 15-year interest rates. Various adjustables also are offered.
  • Less-than-perfect credit is accepted, without a penalty to the rate.
  • Sellers or other interested parties may contribute funds toward closing costs.
  • The maximum loan amount is $417,000, with this amount rising considerably in certain designated “high-cost” geographic areas.

The only cost of a VA loan is the VA Funding Fee. This fee varies based upon the type of transaction and amount of the down payment, if any.

Refinance transactions are especially favorable. Certain veterans qualify for a “streamline” refinance program that reduces the amount of documentation necessary and in some cases doesn’t require an appraisal.

Lenders also offer rates that might be slightly higher than market and receive a cash credit toward closing costs from the lender. For example, I have a client who has a streamline refinance in process. He’s dropping his 30-year fixed rate from 6.00 percent to 4.75 percent. This fellow was quoted a rate of 4.50 percent from another lender. The problem was, the fees and points required his loan amount to go from his existing balance of $170,000 to $178,000.

At 4.75 percent, my lender is able to give the borrower a closing-cost credit of $4,100. This credit is enough to cover all his closing costs, plus the VA funding fee of $839, and have about $1,400 left over to go toward interim interest and escrow deposits.

While the “easy money” mortgage products are long gone, there’s still a wide variety of products available. If you are looking for a loan with a small or no down payment and your credit may not be perfect, FHA and VA loans might be just the ticket.

Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.

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