Today we’ll be reviewing the eligibility requirements and guidelines for VA Loans in North Carolina. We’re going to go through a very brief overview and history then roll into the specifics point by point so if you are eligible, you’ll know your options.
In 1944, FDR signed into law the GI Bill, or the Serviceman’s Readjustment Act. The purpose of the bill was to support soldiers coming back from the Second World War; it provided loans for college, vocational training, business, and home purchases. The home loan provision was, what some think, the most important aspect of the bill. It provided no-down payment home loans which quickly let servicemen enjoy the sprawl of the suburbs which were once a luxury reserved for the upper class. This no-down payment loan has put millions of veterans and their families into homes all around the country. NC State University has a fairly rich history with regards to the GI Bill, you can read about it here – the NCSU library had a wonderful exhibit a few years back chronicling their influx of GI’s onto campus and how the bill helped build a better NCSU.
The basic eligibility requirements are as follows: The VA deems you an eligible veteran if you’ve: 1. You were on active duty and had a non-dishonorable discharge after a minimum of 90 days of service during wartime – or – 2. Served during peacetime for a minimum of 181 days. If you joined the service after 9/7/1980, you must have served for a minimum of two years, AND if you were an officer who started after 10/16/1981. For the National Guard folks, there’s a 6 year requirement with some additional guidelines for surviving spouses. Just like conventional loans, you must qualify (credit, income, debt ratios, etc). A larger list of VA eligibility guidelines are on our site at www.integritylender.com/va_eligibility_guidelines.
The VA home loans are made by quite a few lending institutions around the US. The Veterans Administration role is to guarantee a certain amount of the home loan, generally 25% up to around $105k. So if for some unforeseen reason the borrower defaults on the loan, the bank is covered by the VA guarantee. This is fairly similar to the USDA program where the cost of the home and the funding fees can be financed while the lender has some guarantee that they will be protected from default.
The funding fees that I just mentioned were basically put into place to help lessen the tax burden (on non military citizens) with regards to the cost of the transaction. Fees for those who are obtaining a VA loan for the second time are generally higher because these veterans have already used this benefit and because of the assumption that they’ve had time to save up some money and generate some equity in their previous purchase. Below you’ll see the funding fee sheet I pulled off the VA home loan website.
Those exempt from this funding fee include:
- Those veterans who, because of service related disabilities, are receiving VA compensation.
- Veterans who do not receive retirement pay but are eligible to receive compensation for service related disabilities.
- Often times surviving spouses of veterans who have died in service or from service related disabilities are exempt, but they must meet certain other VA qualifications.
Debt to income ratio requirements will have some lender guideline overlays, but generally if you’re at around 41%, you’re in good shape. This is calculated by dividing your total fixed monthly payments for by your total effective monthly income. [mortgage payment(including principal/interest/escrowed taxes/hazard/hoa dues) + all monthly revolving debt (credit cards, student loans, car loans, etc)] divided by your [gross monthly income (income before taxes are taken)] and you’ll have your debt ratio.
Occupancy Law – VA purchase loans do require the borrower to live in the property within 60 days of closing.
Closing costs are usually at par with other loan programs – but often times are a bit less. The loan origination fee is typically 1% of the loan amount – the lender may charge the flat 1% or charge for an itemized list of fees, but that list can’t exceed the 1%. Here’s a quick list of acceptable fees:
- Application and Processing Fee
- Document Preparation Fee
- Loan Closing or Settlement Fee
- Notary Fee
- Interest Rate Lock Fee
- Tax Service Fee
- D elivery / Wire Fees
- Commitment or Marketing Fee
- Trustee’s Fees or Charges
Other allowable fees include:
- Loan discount points- up to 2 discount points is considered reasonable – this equals 2% of the loan amount.
- Credit report – credit report fees are non-refundable and will usually be required right when you apply. Fees for this run anywhere from $20 to $65 depending on the lender.
- Appraisal fee – depending on your lender, you may have to provide payment for this up front. This is usually from $425-$475.
- Hazard insurance and real estate taxes are collected when you close your loan. Depending on when you close, you’ll be responsible for x number of months of property taxes and insurance premiums. Taxes are traditionally accrued in an escrow account so you have sufficient funds to pay your property tax bill and hazard premium at the end of the year.
- VA funding fee – see explanation above; this is the only fee that can be added to the loan amount or you can pay it in cash at closing time.
- Title insurance – a title company prepares a title search to make sure that there are no existing liens on the home you’re purchasing (if you purchase a home with a lien, said lien is now your problem). After their title search, they issue a title insurance policy. Total cost for this whole process is anywhere from $500-$800.
- Recording fees are charged to have your deed recorded at the register of deeds in your city/county. Basic fees range from $25 to $85 depending on the lender.
Bankruptcy and Credit Issues – Generally, your credit history will be reviewed through standard underwriting guidelines. Your account balances, number of revolving accounts, number of outstanding collections, etc will be considered and weighed against your other qualifying items. As a general rule, it’s fairly standard that you’ll be required to have a clean 12 month history of on-time payments for your accounts. Not having a credit history won’t completely undermine your chances of becoming qualified, but other timely payment activities may be considered (power/internet bills). If you’ve filed a Chapter 7 Bankruptcy, you must let a minimum of 2 years elapse after the discharge date (NOT the filing date). You’ll need several letters of explanation from certain figures involved in the bankruptcy as well as to have rebuilt your credit to required levels. For Chapter 13, you’ll need a letter from your court appointed trustee and you’ll need proof that you’ve made 12 months of on-time payments to the court. You’ll need to have re-built your credit to the required levels, have the required financial levels (debt ratio, etc), and a stable job to qualify. Foreclosure will prevent you from qualifying, especially if the loan was VA insured.
Certificate of Eligibility and DD214 – These are two documents that you’ll need, along with a list of others, before you can start the loan process. The DD form 214 can be requested a few ways, listed here on the archives.gov website. Or you can access the form SF-180 here which is a request form for the dd214 form – you can print this and mail off. The certificate of eligibility can be found here, its official form name is the VA form 26-1880. We’ll also need to collect that other information that I previously stated which includes but is not limited to:
- Income Information – Generally we’ll need your W2’s from the last two years and your last month’s worth of pay stubs, employer information for the last two years, and any other income information. ((Self employed folks need to provide their last two years worth of tax returns.))
- Personal Information – Full names, social security numbers, your place of residence for the last two years, your bank account(s) statements for the last month, and any investment statements for the last month.
Loan Amounts – Most of the counties in North Carolina have the same loan amount limits. Instead of listing them all, I’m just going to list the odd-men out. Unless you see your county in the list below, the maximum no money down loan you can get is $417k – anything over that amount will require a VA jumbo loan (call for more details).
Camden – $812,500Currituck – $498,750Dare – $425,000Hyde – $525,000Pasquotank – $812,500
Perquimans – $812,500
Refinancing – If you’re currently in a VA loan now and you’re looking to move into a lower rate, the VA provides an IRRL Refi or an Interest Rate Reduction Refinance, most often called a Streamline Refinance. This program was created so borrowers can move into lower interest rates with the least amount of cost and trouble. This is like the EZpass lane for loan refinancing. The following are not required:
- Credit Underwriting
- Credit Checks
- Income Varification
- Debt Ratio Consideration
The IRRL Streamline doesn’t allow you to take cash out and the borrower must be up to date on their mortgage with no lates in the past 12 months. To hedge the overall cost of this transaction, you can roll the costs back into the loan or you can have your lender use their earned yield spread to pay for the transaction.
So how do you get started?
1. First, contact a real estate professional and begin your search. Find a home that fits your needs and is within your budget.
2. Get your certificate of eligibility taken care of. You’ll need to refer to the previous section on this page as to how to obtain it and your dd214 form. Your loan professional won’t need the real deals, just copies.
3. Visit your preferred mortgage lender, whether it be a bank or a broker, or us! You’ll get sorted with the proper paperwork and get the ball rolling with your appraisal and approval process.
For More Information Call:
1350 Sunday Drive
Raleigh, NC 27607