- Introduction
- Acknowledgements
- 1: Getting Ready
- 2: The Costs of Space
- 3: Understanding Credit
- 4: Professional Services
- 5: Finding Space
- 6: Residential Leases
- 7: Commercial and Industrial Leases
- 8: Buying Real Estate
- 9: Types of Mortgages
- 10: The Mortgage Application
- 11: Ownership Models
- 12: Purchasing Alternatives
- 13: Chicago Zoning Ordinance
- 14: Chicago Building Code
- 15: Chicago's Neighborhoods
- 16: Property Taxes
- 17: When You Find a Property
- 18: Inspections
- 19: After Moving In
- 20: Insurance
- 21: Utilities
- 22: Rehabbing Your Space
- 23: Safe and Healthy Spaces
- 24: Green Practice
- 25: When Disputes Arise
- 26: Space Emergencies
- 27: Facility Development Planning
- Bibliography
VA Loans
Pros
The Department of Veteran Affairs guarantees fixed-rate VA loans for qualified U.S. military veterans. Offered in terms of 15 or 30 years, VA loans usually do not require a down payment, and have less stringent criteria than conventional loans. These loans will also accept funds from gift programs, other loans or grants from certain sources to be used for the down payment (if required) and closing costs. As of December 2004, the maximum loan amount was raised to $359,650.
In addition to debt ratios, VA loans use a residual income calculation to assess applications. Say, for example, that a lender allows a debt to income ratio of 30%, and requires a residual (leftover) income of $1,000 per month. Although 30% of the borrower’s income goes towards debt each month, after debts are paid, the borrower must have $1,000 remaining to allocate towards property expenses.
So, if the borrower had a monthly income of $1,200, and debts of $360/month, s/he could not qualify for the loan. Although the borrower meets the debt ratio requirements ($360 is 30% of $1,200), s/he does not meet the residual income requirement ($1,200-$360 = $840). In this example, the borrower would need to earn at least $1,360 per month to meet both the debt ratio and residual income requirements ($1,360 - $360 = $1000).
Private Mortgage Insurance is not required for VA loans, but is instead replaced by a VA funding fee that varies from 1.25% to 3.3% of the property value. The fee helps to fund program operations by paying claims to lenders who would otherwise lose money by making loans to sub-prime (under-qualified) borrowers who default on their loans. This fee also goes toward paying lenders who normally would not make these loans were if not for the VA funding fee.
Cons
You must be a qualified U.S. veteran to qualify, and can only use the loan for residential property. You must also occupy or intend to occupy the property as a home for yourself within a reasonable period of time after closing the loan -- i.e., the loan cannot be used to purchase rental-only property.