By Jim Wherry, Legal Assistance Office, Fort Wainwright, AlaskaJune 17, 2010
FORT WAINWRIGHT, Alaska - Financing Your Home: Veterans have several opportunities to finance a home in Alaska. If you have been on active duty for more than six months, you may qualify for a home loan from the Veterans Administration. Home loans by the VA allow current and former service members to purchase a home without paying any of the purchase price up front, as part of the purchase. This is a zero-down loan.
Homebuyers who finance a home through the VA are also not required to pay mortgage insurance which can be $90, or more, per month. There is a VA fee of 2.15 percent of the value of the loan. The fee can be financed into the purchase price of the home the first time you use your VA eligibility. For example, if you purchased a home for $200,000, the VA would charge a one-time fee of $4,300 that could be financed into the loan. If you are a disabled veteran, the VA may waive the funding fee. To learn more about VA loans, go to http://www.homeloans.va.gov/.
Another option for a zero-down, guaranteed loan is USDA/Rural Development. USDA/RD is available for communities with a population of less than 20,000. Here in Alaska that means the program is available statewide except for Fairbanks, Anchorage and Juneau. Why would someone in the military want to consider USDA/RD when there is VA' The first time you use your VA eligibility the funding fee is 2.15 percent,; the second time around is 3.15 percent. By using USDA/RD you could still get a zero-down loan, pay only a 2 percent guarantee fee and therefore save your first-time VA eligibility for the next location where you might want to buy a home.
A VA loan will not guarantee a specific interest rate for the loan. Your interest rate will be determined by the investor program you choose. Fortunately, the Alaska Housing Finance Corporation (AHFC) may be able to help. The AHFC is a self-supporting public corporation with offices in 16 communities throughout Alaska. Their mission is to provide Alaskans access to safe, quality, affordable housing.
AHFC offers several programs that provide low-interest home loans. They have two first-time homebuyer programs. You may qualify for this program if you have not had an ownership interest in a primary residence in the last three years. The tax-exempt first-time homebuyer program has income guidelines depending on the number of persons within your family and limitations on the acquisition cost of the home. The taxable first-time homebuyer interest rate is slightly higher than the tax-rxempt program but there are no income or acquisition cost limits.
AHFC also offers the Veterans Mortgage Program which is available to all eligible veterans who have not been discharged from the service for more than 25 years.
Qualified veterans may include retired or active-duty personnel. If the applicant was discharged, his or her service must have been under conditions other than dishonorable. Active military must have completed their initial period of duty.
The interest rates for several of these programs have been running below 6.0 percent.
Alaska Housing also offers energy efficiency interest-rate reductions for buyers purchasing energy efficient homes and for buyers who make improvements to increase the energy efficiency of their homes. Improving the energy efficiency of your home not only makes your home more comfortable, saves you money on your energy costs and could potentially get you an interest rate reduction on your loan, but for 2006 and 2007, the IRS is offering up to a $500 tax credit to homeowners who make qualifying energy improvements to their homes. Remember a tax credit is a much better deal than a deduction. A tax credit means if you owe the IRS $1,000 but you have a $500 tax credit, you would then owe only $500.
The interest rate reduction for making energy improvements to your home can be anywhere from .125 percent to .750 percent, depending on the improvements made to the home and whether or not the home has access to natural gas. VA, FHA and AHFC will permit you to finance the cost of some of the improvements into your home loan. AHFC loans are qualifying assumable as long as the borrower assuming your loan meets the same criteria that you did. This can be a huge selling point if you have a low interest loan and the interest rates jump to higher levels.
Best of all, AHFC offers a free eight-hour home-buying seminar called HomeChoice. Not only will you learn all about the process but you will also receive a certificate for up to $250 off AHFC's commitment fee. The certificate is good for two years and taking this class should be your first step. Guest speakers may include realtors, lenders, insurance agents, state and federal government officials, or home inspectors/engineers. HomeChoice classes are offered statewide. Classes are held in Fairbanks twice a month. In Anchorage, five or six classes are offered every month, either over two evenings or an all-day weekday or Saturday class. If you would like more information about AHFC, its loan programs or you would like to sign up for a HomeChoice class visit www.ahfc.us.
There are other alternatives for home financing, including an 80/20 loan. Most financing companies require you to put at least five percent of the cost of the house as a down payment. In addition, to avoid the monthly mortgage insurance fee, you must own at least 20 percent of the home. With an 80/20 loan, you borrow two amounts from the lender: an amount that is at least 80 percent of the cost of the home and another amount that is 20 percent of the cost of the home. This allows you to avoid the mortgage insurance. You pay a slightly higher cost for the second loan. If you only plan to own your home for three years, it may make better sense than paying the VA fee. Your lender can compare all programs for you and help you select the best program.
Remember to be creative: you cannot finance your closing costs into a VA loan - except for your VA loan fee - but you can make an offer to a seller that requires them to pay the closing costs, rather than asking them to reduce their price.