Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.twt.misc From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: VA loosens strings on vet loans Date: Fri, 20 Nov 92 15:30:30 EST Message-ID: \SE H;FRIDAY HOME GUIDE \HD VA loosens strings on vet loans \SH Guardsmen and reservists qualify \BY Bob Kerlin \CR SPECIAL TO THE WASHINGTON TIMES Thousands more area military veterans are eligible to buy homes using VA loans, and the terms of those loans are more favorable then ever before, according to new federal guidelines. The new pool of veterans includes men and women who served in the National Guard or were "selected service" reservists. And the new financing terms allow veterans to purchase a home costing as much as $184,000 with no money down, using a VA loan. Both changes are part of the Veterans Home Loan Program Amendment signed into law Oct. 28 by President Bush. The changes are expected to increase the number of VA loans written in the Washington area, with its large number of military people. Other key provisions of the law that expand veterans' rights and probably will give a little boost to the area housing market are: * Deregulating the VA rate. * Allowing veterans to pay discount points. * Allowing veterans to use adjustable rate mortgages to finance their loans. * Lowering the funding fee for rate-reduction refinances. Before the enactment of this change, VA eligibility was limited to veterans with at least 181 days of continuous active service. That excluded veterans who had experienced only boot camp plus paid monthly and summer drills. Terry Jemison, a Department of Veterans Affairs spokesman, expects this new rule to translate into 7,000 to 10,000 new loans taken out this year by newly eligible veterans. This benefit is good for a seven-year period and expires automatically unless extended by Congress. To be eligible, individuals must have at least six years of service. They can still be in the reserves, but if they were discharged, it must have been under honorable circumstances. The term "selected service reserves" is used to mean Guardsmen and reservists who went to boot camp and later participated in paid training each year. Mr. Jemison says it is difficult to come up with an absolute number of newly covered veterans because many reservists and Guardsmen in the past joined after serving two or more years of active duty and thus already had this benefit. Also, there is a large population of people who joined during the 1950s, '60s and '70s, did their six years and then hung up their khakis when they returned full-time to civilian life. Many of them are reaching retirement age and may sell their current home, pocket any capital gains and purchase a smaller home with their newly acquired benefits. The interesting point is that a person who joins the reserves or National Guard today would be eligible for inclusion in 1998. Anyone unsure of his or her status should call the VA at 800/827-1000. The only downside is that reservists must pay 0.75 percent more in the VA funding fee; however, that is a small price for the home-buying power they have achieved. The VA administration will be issuing special certificates of eligibility for this new group. A decision will be made in the next several weeks on the color and size of the certificates so the correct funding fee can be collected. "Opening up the market to more VA buyers is great," says Anita Neilsen, a top agent with Five Star Properties in Reston. "I have at least seven listings in the VA price range; this change means there are now more potential buyers for these properties, which means my sellers can buy another home." Deregulating the VA rate and allowing buyers to pay discount points may be the most significant reform and have the biggest impact on the housing market. Since 1946, the VA had set the VA rate and lenders would charge discount points to equalize this with the market cost of money. That made for a rate that lagged behind both falling and rising markets. Old rules forbad buyers and required sellers to pay the discount points charged by lenders to equalize the rate. Until Oct. 27, the VA administered rate was 7.5 percent, but it took at least 6 discount points to fund the loan at that rate. Now a buyer can negotiate the rate - going to 8 percent or 8.5 percent - and offer to pay discount points, thus having a greater chance of a seller's accepting a VA contract. "This is quite a benefit to the market," says Helen Landseadale, a lifetime million-dollar agent with Shannon & Luchs' Vienna office. "The VA market had come to a standstill. We had a lot of sellers that would not even consider a VA contract because of the heavy cost of the points. Now buyers and sellers can negotiate the financing the same as the price of the home, just like conventional financing. The VA buyer can still buy up to $184,000 with no money down and be assured that a seller will accept the contract." Allowing veterans to finance with an adjustable rate mortgage is also seen as a benefit. The VA ARM will be similar to the FHA ARM, with a 1 percent annual cap, 5 percent lifetime cap and a relatively low 2 percent margin. Recently, a 6 percent FHA ARM was as low as 6 percent with 2 discount points and a loan origination fee. Although a secondary market has not been established for the VA ARM - and thus no lender is offering it yet - a market is expected to develop in the next month, with lenders offering it by the first of the year. This is especially useful for active-duty veterans who know they will be stationed at a location for as little as three years and want to purchase, yet keep their payments low. In another provision of the bill, one that will have mixed effects on veterans, the funding fee for rate-reduction refinances is lowered to 0.5 percent of the loan amount, but discount points cannot be financed. This is viewed as putting a damper on "streamline" rate-reduction refinancings because most borrowers do not want to write a check for the discount points. Taken in total, the changes in the VA Loan Guaranty regulations will open the program to more people and give them options they did not have before. This can only be good for the economy. Bob Kerlin is the mortgage columnist of the Friday Home Guide. This article is copyright 1992 The Washington Times. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM