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For veterans, VA loans are worth red tape


Are you a veteran eligible to buy a home with a Veterans Administration mortgage? Then don't let any lender or real estate agent discourage you from pursuing the option.

"Go for it, push ahead, pursue it," advises Douglas Bregman, co-author of the paperback "Successful Real Estate Negotiations." "The VA loan could be an excellent choice for you when you buy a home," he adds.

With a VA loan, you can borrow most or all of the value of the property. You're allowed to finance many of your closing costs. And you'll be shielded from having to pay the lender many costs associated with the mortgage -- including any "points" beyond the original mortgage origination fee. (A point equals 1 percent of the mortgage principal).

What's more, the overall cap on how much you can borrow with a VA-backed loan has been hoisted to $184,000, up from $144,000 last year. That means a qualified buyer can buy a more expensive home without a big down payment.

"A VA loan is probably the most attractive way for an individual to purchase a home," observes Charles Ellinger, Towson branch manager for GMAC Mortgage.

Given all the pluses for the borrower, does it come as a surprise that some veterans are steered away from taking out a VA loan rather than a conventional or FHA mortgage? It shouldn't. Some real estate agents dislike VA mortgages because they impose terms on the seller that sellers like as much as cod liver oil.

Remember that virtually all real estate agents are legally bound to represent the interests of the seller, not the buyer -- no matter how much time the agent has spent ferrying the buyer about looking at property.

And how many sellers will gladly assume the responsibility for paying the discount points for the buyer of their homes? Discount points are paid by the seller to the lender to make up for the difference between the VA mortgage rate and the usually higher market interest rate.

Appraisals also can be problematic for the seller and his agent when a VA mortgage is involved. To protect the veteran from overpaying, the VA won't allow the veteran to borrow any more than the appraised value of the home. And VA appraisals have a reputation for coming in low, says GMAC's Mr. Ellinger.

"Appraisers are more cautious on how they appraise a property for a VA loan," Mr. Ellinger says.

Many lenders are afraid of the financial exposure -- and bureaucratic problems -- triggered by a soured VA loan. So, the same appraiser might put a lower valuation on a property to be financed by the VA than, say, by a conventional loan, Mr. Ellinger says.

"Lenders don't like VA loans that default. That's because the lender has to go through a very cumbersome process to recoup the losses he experiences," he says. (Although VA loans are backed by the government in large measure, remember that it's private lenders who actually originate such loans.)

Suppose you put in a VA contract to buy a three-story brick farmhouse. You agree to pay $180,000. But the VA appraises the property at $175,000. That means the whole deal has to be restructured -- with the likelihood that the seller will get less for his home.

While a "cut appraisal," as such is known, could prove irksome to a seller, it could also benefit the buyer if it leads to a reduction in price. But a buyer who must compete with other contenders for a property may not want to attempt a VA mortgage.

In the buyer's market that prevails in many areas these days, many sellers will accept willingly the terms and conditions tied to a VA contract, says Mr. Bregman, a real estate attorney in Bethesda.

"The VA is an especially good loan in a buyer's market," he says.

If you're a veteran interested in exploring a VA loan, realty specialists offer these pointers:

* Find out first whether you're truly eligible for a VA loan.

"You could write a book on the eligibility issue," says Steven Marshall, Severna Park branch manager for PaineWebber Mortgage, the Columbia-based lender.

Veterans Administration rules -- on who is entitled to the mortgage benefit, to what extent and under what circumstances -- are so complicated that they bear looking into before you seek a VA sales contract.

Further complicating the picture is that members of Congress are now seeking to rewrite eligibility standards to bring in more veterans of the Persian Gulf war.

But if you work with a lender that does a lot of VA business, and you supply the lender with your military discharge papers, the lender probably will help you fill out the proper VA form to demonstrate your eligibility.

* Go through the lender's "pre-qualification" process as a VA borrower.

Even before you look for your new home, sit down with the lender and establish your income and creditworthiness for the VA loan you seek. At the end of this process, you should receive a statement that you have been essentially pre-approved for the loan you seek. Such a statement can help calm the fears of a

seller worried about selling his home to a buyer using a VA loan, says Mr. Marshall of PaineWebber.

"It can be the difference," he says, "between the seller taking your contract or not."

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