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Published 28 July 2019
From the outbreak of the Mexican American war in 1846 to campaigns being waged this very day in multiple countries around the world, New Mexico servicemen and women have bravely defended America’s Constitution and way of life. With that service came a long list of benefits, one of which is the VA home loan guaranty.
In 2018, 1.9 million U.S. vets used the third-most popular benefit. Of that number 5,259 loan guaranties were issued to New Mexico veterans; of which 594 were utilized to purchase, refinance or upgrade a home in Doña Ana County, according to Monica Cabrera, public information officer for the VA’s Phoenix Regional Loan Center in Arizona.
“The objective of the VA Home Loan Guaranty program is to help eligible Veterans, active-duty personnel, surviving spouses, and members of the Reserves and National Guard purchase, retain, and adapt homes in recognition of their service to the nation”, according to the VA website at https://www.benefits.va.gov/REPORTS/abr/docs/2018-loan-guaranty.pdf.
The website also details the Native American Veterans Direct Loan Program, which “helps Native American Veterans or Native American non-Veterans finance the purchase of homes on Federal Trust Lands. VA has entered into memorandums of understanding with 94 participating Native American tribes. During FY 2018, VA closed 18 loans under this program. Since its inception, VA has made 1,073 loans to Native American Veterans.”
The concept behind the program is simple. Veterans who have decent credit and a steady source of income can use their benefit to purchase a home in Doña Ana County with no down payment. The maximum purchase price for a single-family home is $484,350. Key lending criteria include no maximum debt ratio, no minimum credit score and no mortgage insurance, although VA does oblige lenders to make sure the veteran has the ability to repay the loan. Most Las Cruces-area banks, credit unions and mortgage companies offer VA loans.
With the exception of disabled vets and their surviving spouses, the VA charges the veteran a one-time “funding fee” of between 1.25 and 3.03 percent of the loan amount, depending on whether the buyer opts to utilize a down payment. The fee goes into a kitty that’s tapped to repay lenders up to 85% of the loan balance in the event the veteran defaults on the loan. If a property is not sold at the foreclosure sale, the lender is repaid, title reverts to the Veteran’s Administration, and the home is sold as a VA repo.
A side benefit to a VA loan is that it is assumable, which is to say that a qualified buyer can assume the veteran’s loan. Buyers who assume VA loans don’t have to be veterans and are not required to live in the home. Unfortunately for the veteran, his or her eligibility remains tied up in the home until the new borrower pays off the loan. Veterans can retain their eligibility, however, if their loan is assumed by another veteran. Veterans who assume a VA loan and substitute their eligibility for the eligibility of the original borrower frees up the original veteran’s benefit to be used again. The veteran who assumes the loan must occupy the home as their principal residence.
VA loans may add value to a property in the future. Let’s say a veteran decides to sell his home after living in it for five years. And let’s say the home’s value has appreciated by 4 percent each of those years, resulting in equity of around 20 percent. Equity is the difference between the value of a property and what’s owed against it. Let’s also say that mortgage interest rates have risen to 6 percent over the years. Would a buyer with 20 percent down be better off financing his purchase with a new 30-year loan at 6 percent, or by utilizing the 20 percent to assume a VA loan at, say, 3.5 to 4 percent that has 25 years remaining? The answer is obvious. Would the 33 to 42 percent lower interest rate (3.5 to 4 vs. 6) and five-year shorter term (25 vs.30) make the veteran’s home worth more than the theoretical identical home next door? The answer is almost assuredly yes.
A total of 133,402 New Mexico veterans served our country between WWI and December of 2015, according to the NM Department of Workforce Solutions. If you are one of the 142,187 vets currently residing in New Mexico or are on active duty now, this benefit may be worth exploring.
For information, contact your Realtor or the VA’s Phoenix Regional Loan Center at 877-827-3702 or http://www.benefits.va.gov/ROPHOENIX/regional-loan-center.asp, or a local lender.
Thank you for your service!
Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at 575-642-2292 or Gary@GarySandler.com.
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About Author
Gary Sandler
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