VA Financing may be a significant factor in the residential real estate market in 2013. VA Financing has been a factor off and on again over the years based upon the number of eligible Veterans in the population. In the south where there are large numbers of large military bases, as well as a large number of military retirees and eligible ex-military civilian retirees, VA Financing has been a fairly consistent factor in the residential real estate market, but in the Northeast as well as other sections of the country with minimal active military, VA Financing has not been a significant factor in many years.
Why has VA Financing not been a factor? Well, it has to do with who can obtain VA Financing. VA Financing has a very limited pool of people that can take advantage of the program. The way the program works is a lender makes a loan to an eligible individual and the VA guarantees the loan; if the VA borrower defaults on a loan, the lending institution is typically made whole and the VA takes responsibility for the loan and its costs, but the VA rarely if ever actually funds the initial loan. VA Loans can be sold by the initial lender to other lenders, or investors, or held in the initial lender’s portfolio as well, but in the last thirty years the majority of VA Loans have been sold into Ginnie Mae loan pools, so the loans are effectively funded on the secondary market like most other home loans today. VA Loans will be a growing factor in the 2013 market because of the large number of VA eligible service members that have been created by our country’s recent overseas military engagements and the way these engagements have been handled. The US military called heavily upon National Guard and Reserve forces over the last decade more so than at anytime since World War II as a proportion of our military. Traditionally Reserve and Guard Troops do not have enough active time in the military to be eligible for VA Financing or other benefits, but since the military chose to use Guard and Reserve troops in our most recent military campaigns a much larger pool has been created, especially in New England where Reserve and Guard Troops have significant repeated tours of duty, many of whom where on continuous rotations through conflicts. While New England does not have any really large military installations when compared to say, Georgia or South Carolina, we do have a long tradition of Reserves and Guard Troops – going back to Lexington and Concord in the Revolutionary War – the military needed to take advantage of it to execute its plans. This has meant that all these men and women now have 180 or more days of continuous active military service which is the minimum threshold for VA eligibility.
So here’s who’s eligible for a VA Loan: Veteran’s with 181 days or more of continuous active military service that have been honorably discharged from the armed forces of the United States, their spouses and/or their unmarried widows or widowers. VA Loans can only be used to purchase a property that is intended as a principal residence of the VA borrower; they can not be used to purchase an outright investment property. VA eligible borrowers can use their eligibility to purchase a multi-family property in which they intend to occupy one or more of the units as their home as long as the property has four or less units. VA eligible borrowers do not have to pay off or refinance the VA loan if their circumstances change and they no longer choose to occupy the property they financed through the VA due to an unforeseen circumstance.
VA Loans have some unique features which typically makes them the very best for an eligible borrower to purchase an eligible property: VA Loans do not require any down payment; there is no limit on the amount of seller concessions that may be paid by a seller on behalf of a buyer – I have had VA purchases where the seller paid all the buyers closing costs, pre-paid items and paid off the buyers credit cards and car loans!
VA Loans currently are not available to domestic partners that are unmarried or same sex couples that are married unless both individuals are eligible for VA benefits. Often in this situation if one party is eligible (if they have enough income) the home is just purchased in a single buyers name and an equitable right to the property is transferred over to the non-eligible domestic partner after closing, however the VA buyer will always be the only oblige on the mortgage to the VA.
By Dick Thackston CRB, ABR, ABRM, Broker NH, MA & VT