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Vets Rescued By VA Refi

One of the best — and easiest — streamline refinance programs is available to consumers who now have a loan guaranteed by the U.S. Department of Veterans Affairs.

The VA streamline, known as the Interest Rate Reduction Loan, has no “season” requirement, meaning that borrowers who refinanced recently still are eligible. In addition, the loans entail very little documentation and usually do not require an appraisal.

In order to qualify, borrowers must have a current VA loan. The interest rate varies on the loan type (some 30-year fixed-rate loans are now less than 5 percent) and the length of the loan cannot exceed 360 months. Payments are due monthly. No more than two points may be rolled into this loan plus the allowable closing costs. A funding fee of approximately 0.5 percent is typically collected before closing and can be financed into the loan. Funding fee exemption is possible upon proper verification of disability.

VA lenders will ascertain that borrowers meet basic program requirements including:

* The new monthly loan payment must be for less than the original loan.

* The interest rate must be for less than the original loan (unless refinancing an adjustable-rate mortgage).

* The term cannot exceed 360 months or no more than 10 years more than the original loan term (up to a max of 360 months).

VA loans are guaranteed by the Department of Veterans Affairs and can be used to purchase a single-family home, including a townhouse or condominium unit in a VA-approved project, to build a home, and purchase and improve a home. Loans are assumable under certain conditions and do not have a prepayment penalty.

The VA program began in 1944 when President Franklin D. Roosevelt signed the Servicemen’s Readjustment Act into law. This bill, which eventually became known as the GI Bill, allowed veterans to purchase homes without making a down payment. The VA fixed-rate loan gives borrowers the option of financing their mortgage in 15-, 20-, 25- or 30-year terms.

The perception that a VA loan guarantee can be used only once is incorrect. If your original VA loan was paid off, you are eligible to use the guarantee again. If you purchased a previous home with a VA loan and the buyer assumed your loan, your eligibility can be restored only when the assumer has paid off the loan. The only other alternative would be if the assumer is an eligible veteran who is willing to swap his or her available eligibility for yours.

Some seniors and aging boomers still don’t know that reservists are eligible for VA programs. After 50 years of offering loans only to vets who served active duty, the VA changed its ways in 1992. Men and women who have completed six years in the Army, Navy, Air Force, Marine Corps or Coast Guard Reserves, or the Army National Guard or Air National Guard, are eligible for VA home loans, including programs with no down payment.

While federal regulations require that all loans insured by the Department of Veterans Affairs be used only to acquire a “primary residence,” it is possible to purchase a second home using your VA loan guaranty. As in many cases involving the use of real estate, the definition of primary residence is the place where you live “most of the year.” So, if you use the home more than six months of the year, it can be defined as your primary residence.

For example, let’s say you are getting ready to retire (or can work from a home anywhere) and want to buy a home in Arizona to escape the colder months of the year. However, you also wish to spend time locally with your family, so the plan is to use the Arizona home October through April. That seven-month period would constitute the largest block of time you lived in any one place. Therefore, your new home in Arizona would qualify as your primary residence.

The VA requires that you move into the home in a reasonable amount of time and that you keep it as your primary residence. If those are your intentions at the time you apply for the loan, then there is nothing to keep you from using your VA guaranty to purchase a second home or retirement property.

The VA now provides attractive, underestimated options for refinance and new purchase loans. It might make sense to do your research.