Using your VA loan benefit in Hawaii

For years, it seemed that Hawaii Veterans' home loan benefits existed in name only. With previous loan limits hovering around $230,000, trying to use VA loan benefits seemed hopeless in most of the state.

Two major factors changed this. First, interest rates decreased significantly allowing Vets to qualify for existing inventory. Second, ceiling on VA loans increased in Hawaii to $625,000, as long as the Vet qualifies financially. Loans over this amount can be made with a large reduction in down payment.

There are reasons that using VA benefits makes a lot of sense. It's refreshing to see that the VA seems willing to bend over backward to assist qualified Veterans. VA interest rates are competitive with prevailing conventional rates. Veterans enjoy higher allowable debt ratios enabling them to purchase more house with the same income. While other programs (especially zero down programs) cap the borrower's debt ratio at 29-33%, the VA expands this ratio to 41%. As an example, a dual income family in East Hawaii making $5000 per month could qualify for a VA mortgage of approximately $350,000.

Other loan programs would cap this amount at approximately $285,000.

The VA has always been a bit more forgiving about credit "hiccups" than other loan programs. Where the Veteran's Administration had strict requirements for homes less than a year old in the past, these requirements seem to have been relaxed and, in theory, the VA will now allow "some" unpermitted areas. So, while it's still not possible to build a home using a VA loan, purchasing new construction an appealing possibility.

Many National Guard and Reserve soldiers do not realize that they probably qualify for VA home loan benefits. Widows of qualified Vets can use a spouse's benefits but children cannot. For this reason, I always encourage Veterans to use their benefit. It's possible to inherit a home but, for other than a spouse, VA benefits are extinguished at death.

Vets with existing mortgages should consult their lender to determine if refinancing into a VA loan is worthwhile. Remember, other government guaranteed loans (Rural Development) do not set limits on the cost of the home but caps on household income keeping loan amounts below the median priced home in most areas.

There are geographic restrictions related to RD loans but not with VA. In fact, in general, VA loans have fewer restrictions and limitations. FHA loans, which are low-down government insured loans have a lower loan cap than VA. FHA loans have a monthly private mortgage insurance (PMI) payment as well. Remember PMI payments benefit the lender, not the borrower.

Considering that no down payment is required for VA loans, points are now negotiable and interest rates are still very low, it's easy to understand why VA loans are once again becoming very popular in and around our East Hawaii neighborhoods. All-in-all, this means that VA loans are good for sellers and great for us Vets!