MYTHS OF V.A. FINANCING

With so many realtors unaccustomed to VA financing or many who just haven’t had a transaction that involved VA financing for a long time, I decided to discuss some of the objections lenders and agents hear all of the time.

Myth #1     “The seller has to pay points based on the loan amount”

Back in the 70’s and 80’s a seller had to pay anywhere from 1-6 points or more (a point is 1% of the loan amount) depending on interest rate markets. The Veterans Administration determined the rate so points were charged if Conventional rates were higher, also known as discount points. Now the VA rate fluctuates daily like all loans and the seller no longer has the cost of points.

Myth #2     “The seller has to pay additional fees”

In the past lenders would charge the veteran a 1% loan origination fee. When the veteran was charged this, the veteran was not allowed to pay the escrow fee, some county and miscellaneous fees and a limited amount of lender fees. Therefore, these fees would be charged to the seller. Most lenders no longer charge the 1% loan origination fee therefore the veteran pays his own customary fees and the seller pays his own fees.

 Myth #3     “VA appraisals have too many work requirements”

There was a time when VA appraisers would require painting of window sills, repairs to cracked faceplates, replacement of missing cabinet handles and many other minor repairs. Now the focus is on health and safety issues of the property which are deficiencies that could cause harm to the occupant.

VA financing offers no money down financing with no mortgage insurance and very competitive interest rates. The no down loan amounts vary by county. 2014 limits are:

Los Angeles County  

$687,500

Orange County        

$687,500
 
San Diego County     
$527,500

Riverside County       

$417,000

When the sales price exceeds these loan amounts the veteran is required to pay 25% of the difference between the sales price and the no down county limit as a down payment to a maximum loan of $1,000,000 and higher in many areas.

As an example, with a sales price of $800,000 in Orange County the down payment can be as low as $28,125.

The Veterans Administration charges the veteran a VA Funding Fee which will vary depending on whether the veteran has used his eligibility previously or not and the percentage of the down payment. The VA Funding Fee can be financed into the loan. For first time users the fee, which is based as a percentage of the loan amount, is as follows:

No Down Payment                          

2.15%

5.0% to 9.99% Down Payment     
1.50%

10.0% or more Down Payment   

1.25%