Tuesday, June 11, 2013

VETS 3 | VA Loans–NYC Issues

Veterans mostly leave the armed forces after a few years' service. They return home, get married or have (more) children, and they look for a house. 

The Veterans Administration (VA) Loan program was created for them during the World War II years and helped create the post-WWII housing–and baby–boom. 

The program has helped more than 18 million veterans become homeowners. It was designed to provide financing for either the purchase or the renovation (or both) of a home owned by veterans and their spouses. 

The unique features of the VA program are that a veteran can purchase a home with no money down and almost no out-of-pocket costs. 

The loans are made by private lenders and are guaranteed by the VA. Veterans can ordinarily borrow up to $417,000, with a higher amount in pricey communities - up to $723,000 in New York City. The advantage for a veteran is that the guarantee by the VA makes possible a zero-down-payment mortgage without paying the private mortgage insurance that would be required on a mortgage loan with less than a 20 percent down payment.

This is a very attractive program. Yet with 24 million veterans in the USA today, the 18 million users of the VA loan program over 69 years implies a relatively low usage of the program. The problems may be:
  • Lack of knowledge of its existence (some lenders don't promote it),
  • Lack of appreciation of its value.
  • Legal and other obstacles in urban areas.
The New York City Case

While it is fairly easy for veterans to get a VA loan on a house, it turns out to be extremely difficult to secure a VA loan on an apartment, which are mostly condominiums or co-operatives in New York City, to allow for multiple owners of a single building. 

In order to buy a condo apartment with a VA loan, the building that contains the condo must be approved by the VA in a process that is unfamiliar to most real estate agents. 

The building in which the condo is located must get VA approval. Few condo projects have VA approval. For example, Alex Hecht of Warrior Family Foundation today (June 11, 2013) searched each of the five boroughs of New York City using the VA's own online condo search tool and found only 30 VA- approved condo complexes in the entire city - a city in which 50 percent of all the housing units are apartments, the highest ratio in the country (in Los Angeles it is 42 per cent and in Washington, DC it is 41 percent).

Moreover, under the current rules, apartments in housing cooperatives are not eligible for VA loans at all. Congresswoman Carolyn B. Maloney, who represents the Upper West Side of Manhattan and parts of Western Queens, has introduced a bill that would give the VA authority to guarantee loans on co-ops, an obvious first step in solving the urban VA loans problem.

These obstacles affect not only veterans looking to buy in dense urban centers like New York City, where most housing units for sale are condos or co-ops. They also impact vets in smaller cities and suburbs around the country who are considering apartments as a cost-saving alternative to stand-alone homes.

The New York Times, in a story today by Elizabeth A. Harris, shows the plight of Joe Vollono, a graduate of the Oxford University MBA program, and his wife Monica Raquel Ortiz, a former State Department staffer for ten years. Mr. Vollono served in the Navy submarine force for four years and qualifies for a VA loan. He was ready to sign papers in January but is still waiting for the loan.

Advantages of a VA Loan

Nevertheless, the VA loan guarantee program remains a very attractive option for veterans looking to buy a house or even a condo. Here are some of the features:
  • No down payment is required to buy the property.
  • The VA will guarantee up to 103.5 percent of the loan if it falls within the maximum loan limits of the area (the 3.5 percent is for the fee), i.e., $723,000.
  • Mortgage insurance is not necessary even though no down payment is required.
  • The interest rates are competitive with other loans.
  • No funding fee needs to be paid out by a disabled veteran.
  • Some of the lenders fees are limited, for example a bank can only charge a 1 percent origination fee.
  • In a cash-out refinance, the refinance can be for 100 per cent of the value of the home.
  • For new manufactured homes, the builder must give the purchasing veteran a one-year guarantee that the home has been constructed to VA-approved plans and specifications.
  • The borrower is allowed to prepay part or all of the loan without a prepayment penalty.
  • If a veteran homeowner is having issues paying his or her mortgage due to temporary financial difficulties, the VA will assist with personal loan servicing and financial counseling.
Active military members are also eligible for VA loans.

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