VA Loans - Inside Information

VA loans are not given through the Veterans Administration (VA).

The loans are guaranteed by the government.

You get a VA loan through a lender or mortgage company.

Are You Eligible For a VA Loan?

- You must have been honorably discharged or are on active duty with a total of six years of service in the National Guard or selected reserves. Certain surviving spouses of veterans are also eligible.

- The limit for a loan is $417,000, however, the limit is higher in certain parts of the United States.

- NO down payment.

- No private mortgage insurance.

- Sellers can assume between 3-4% of your closing costs and other costs of your loan. When a seller "assumes" these costs, the costs are put back into your loan, you don't have to come up with the money at closing.

- You have to live in the home, available only for owner-occupants. You can't buy a home using your VA status for your kids. You have to reside in the home.

- A disadvantage to a VA loan is that it generally takes longer to process. In my opinion, it's worth it. You get better conditions (no money down!) than a traditional loan.

- Get your certificate of eligibility (COE) before you start the home buying process. Your Realtor® and the VA will help you. Here's a link that will help you get your certificate.

Summary:

- You know the answers to important questions to help you decide which loan is best for you.

- You know basic information regarding ARMs and fixed rate mortgages, including pros and cons.

- You have an understanding about FHA loans, USDA loans, conventional loans, seller financing and VA loans.

Now, you're ready to make a formal loan application with a lender or mortgage company. I highly recommend Maureen Martin of San Diego Home Lender. She is a VA loan expert with years of experience.

Chapter 3: How to Pay Your Mortgage Off Early

There are several ways you can pay your mortgage off early. Send an extra payment every month, every two weeks, or annually.

I mentioned that first-time home buyers who are not knowledgeable about ARMs should get a 30 year fixed mortgage. I also mentioned that if you would like to pay your mortgage off early, I'll give you some tips about how to do so. Before you learn those tips, you need to learn the basics of how a mortgage payment works or amortization.

Amortization

Mortgages are amortized, a fancy term that simply means payments are spread out over a period of time.

When you get a mortgage, at the beginning of the loan, the majority of your payment is applied to interest and the rest of your payment is applied to principal (your loan balance).

The reason you pay so much in interest at the beginning of the loan term is the lenders want their investment back as soon as possible.

Here's an example of amortization for the first year of a loan:

$200,000 loan

30 year fixed rate of 4.50%

$1,013.37 monthly mortgage payment

Your loan starts March, 2015.

If you make your regular monthly mortgage payments for 30 years, your loan will paid off February 1, 2045.

Here's an amortization schedule with a monthly payment of $1,013.37 that stays the same. The table shows monthly payments over the first year of the loan (12 payments).

Take a look at how your first payment of $1,013.37 is applied to your loan.

$750.00 is applied to interest.

$263.37 is applied to your loan balance, the principal.

Total interest paid in the first year: $8,933.99. WOW!

Total principal paid: $3,226.45.

Huge difference, right? The lender earned $8,933.99 and you paid $3,226.45 toward the balance of your loan.

At the beginning of your loan, the majority of your monthly payment is applied to interest. As your loan term continues, the amount of interest your lender earns lessens and the amount applied to your principal (loan balance) increases.