Veterans have advantage in fight for loan

If getting a home loan is a battle, then 35 million veterans ofU.S. military service have a tactical advantage.

They need no down payment. That's right: On loans of up to$144,000, no down payment is required for qualified veterans.

Since 1944, the Veterans Administration has guaranteed 12.5million mortgage loans for veterans, allowing them to buy homes withno down payment at a competitive mortgage rate.

In the fiscal year ended Sept. 30, it guaranteed 10,522 loans inIllinois.

That's great news not only for vets, but for people buyinghouses owned by someone with a VA mortgage. As long as the sellerqualifies to buy the house, he or she can assume a VA mortgage.

Unfortunately, this probably will work only if the house hasn'tappreciated dramatically since the vet bought it.

If a VA mortgage is assumed by a non-vet, the veteran loses hisentitlement until the mortgage is paid off by the new owner and thevet then obtains a release of liability form. But if a vet sells hishome to another vet, the seller can take over the buyer'sentitlement. He just needs to have a VA official walk him throughthe necessary paper work.

Also, a veteran who has paid off a loan is eligible for another.

If you're a vet, you hunt for a house and choose a mortgagelender just like anyone else. Then you tell your broker and lenderyou want a VA loan, and they'll have the papers you need to apply fora certificate of eligibility for a VA mortgage loan guarantee.

Or you may already have the certificate, which used to bemailed automatically to vets when they left the service.

VA mortgage rates are regulated by the government and arecomparable to conventional loans. Right now, the rate is 10.5percent. And vets must show they reasonably can be expected to meetloan payments.

But if they qualify, a VA mortgage is a great deal. Here's why: On homes of $144,000 or less, no down payment is required. Payments for principal and interest are predictable because theinterest rate remains constant over the life of the loan, which canbe any period up to 30 years. The loan can be assumed by the home's next purchaser, even if thebuyer is not a vet. There is no prepayment penalty. A recent VA survey shows there is less paper work for a VA loan thanfor a conventional mortgage loan.

Veterans who have a down payment can get a VA loan for a housecosting more than $144,000. Alan Schneider, VA loan guaranteeofficer for Illinois, explained how the loan-limit formula works.

"The VA has no maximum loan amount, but there is a maximumguarantee every veteran is entitled to. It now is $36,000," he said.

Since lenders generally want risk protection on 25 percent of aloan, a $36,000 VA guarantee means up to four times that amount, or$144,000, can be borrowed.

But if the vet has some cash for a down payment, the limit risesfast. Say you've got $10,000 for a down payment. Add that to the$36,000 VA guarantee, multiply $46,000 by four, and your mortgagelimit becomes $184,000.

Any veteran of U.S. military service from World War II onwardwho has served a minimum number of days is eligible for that mortgageguarantee from the VA. The number of days' service required is 181 inwartime, and generally two years in peacetime.

For specifics, call your local VA loan-processing section. InIllinois, the office is in Chicago. The phone number is 353-4038.The address is Veterans Administration, Loan Processing Section, 536S. Clark, Chicago 60680.

Also eligible are unmarried spouses of deceased veterans, andspouses of service members who have been captured or listed asmissing in action.

The vet who lets his loan be assumed must be sure to obtain arelease of liability from the VA loan-processing section. Otherwise,if the new buyer defaults, the vet can be held liable for whateverloss the VA suffers because it has to meet a claim under theguarantee.

"For loans committed after March 1, 1988, the buyer and sellermust apply for a release of liability for the loan to be assumable,"Schneider said.

That's a good thing, because it means the buyer has to meet theVA's standards, and is less likely to be forced into default.

For loans committed after March 1, the person assuming the loanmust pay a $255 processing fee and must pay a fee of 0.5 percent ofthe loan balance. This money goes into a revolving fund from whichclaims are paid on defaulted loans. These fees are not charged forpre-March 1 loans.

So what does a VA loan cost?

There is a 1 percent funding fee, which goes into the VAguarantee revolving fund. There also is a 1 percent origination fee,payable to the lender. And there are the usual closing costs, suchas title examination and insurance, property survey, cost ofappraisal and credit report.

There are no points payable by the veteran to the lender.Conventional loans are averaging about 3 points, or 3 percent of theloan, which the lender demands as an upfront payment, in addition tothe annual interest rate.

Sometimes, lenders charge discount points, which are paid by theseller.