Since World War II, the VA Home Loan has helped millions of military, veterans, and military families realize their dream of owning a home. Despite its perks, many veterans don’t take advantage of it, either because they don’t know it exists or because they believe some of the common misconceptions.
If you are eligible for the VA loan, it is definitely worth exploring as the program offers a handful of benefits not normally found with other mortgage products.
One of the most valuable aspects of the VA home loan is that skilled buyers can buy a home with no money. Conventional and FHA loans typically require a minimum of 3% and 3.5% down payment, respectively. For a $ 200,000 mortgage, that’s $ 6,000 for a conventional loan and $ 7,000 for FHA – sizeable sums of money for any buyer. Skipping the down payment is a huge benefit for military borrowers as they can move into a home sooner without their savings.
No monthly mortgage insurance
Conventional loans and other government loan options usually require monthly mortgage insurance if the down payment is less than 20%. The mortgage insurance rate depends on several factors, but Freddie Mac says that traditional loan borrowers can expect to pay roughly between $ 30 and $ 70 per month for every $ 100,000 borrowed.
VA loans are exempt from monthly mortgage insurance regardless of the size of the down payment, which is a significant saving. However, borrowers are responsible for a one-time VA financing fee that acts as a type of mortgage insurance. Wayne Lacy, branch manager of Cherry Creek Mortgage, says that while the fee is due upon completion, it is usually funded by the loan.
“The funding fee helps keep the program going and offsets lender losses due to default,” he said. “The amount of the fee depends on the type of VA loan, your military class, whether or not a down payment is made, and whether you have used a VA loan in the past.”
According to the VA website, the subsidy fee can range from 1.4% to 3.6% of the final sale price. However, some borrowers are exempt from paying the fee, including veterans receiving compensation for service-related disabilities.
Competitive prices and milder requirements
The Department of Veterans Affairs (VA) does not finance mortgages, but secures part of each loan against default. This assistance or guarantee enables private lenders to offer lower interest rates to VA borrowers.
According to mortgage data provider Ellie Mae, VA loans on 30-year fixed rate loans concluded in November 2020 had an average interest rate of 2.72%, compared to 2.99% for a traditional mortgage with the same term.
Also, because mortgage lenders take less risk on VA loans, they tend to be more flexible with credit scores and debt-to-income ratios, and are more forgiving of larger credit events such as bankruptcy or foreclosure.
Lacy says some buyers assume this means there are no strings attached and approval is automatic as the word “guarantee” comes up a lot when discussing VA loans.
“Guarantee refers to the amount of government-backed loan,” he said. “This does not mean that a VA loan is guaranteed to a buyer. Each borrower must continue to meet the lender’s qualification criteria. ”
Are there any disadvantages?
Every loan program has its pros and cons, and just like any mortgage option, the VA loan is not the right choice for every service member or veteran. But Lacy says that some of the disadvantages of VA loans are actually misunderstandings.
“The most common concern is that a VA loan will take longer to process, but it really isn’t,” he said. “While the VA is sponsoring the loan, everything is being driven by the lender … nothing needs to be ‘approved’ by the VA. In my experience with these loans, the underwriting process is often simpler and more transparent, and the closing date is similar to any other mortgage product. “
Another misconception relates to the VA assessment process. While each appraisal helps determine the value of a property, the VA goes one step further and ensures that a home also meets the VA’s minimum real estate standards. In general, any visible health or safety concerns will be an issue in a VA assessment report. However, these issues would likely be of concern to any buyer. If the house is in good shape then there really should be no cause for concern.
Lacy says the problem with these assumptions is that sellers are cautious about accepting a VA loan offer because they believe it can lead to a more difficult transaction.
“It’s unfortunate because the VA loan is a competitive, flexible option that has made home ownership for many military borrowers,” he said. “I really think there needs to be more education in the industry so that we as professionals can effectively convey the benefits of the program to our customers and help dispel the myths.”
How do I find out if I am qualified?
The VA home loan program is available to veterans, active service members, and select reservists and members of the National Guard. Military service spouses who have died while on duty or as a result of a disability due to service may also be eligible.
One of the first steps in the VA loan process is to get a Certificate of Eligibility confirming to your lender that you qualify for the home loan service. You can apply for the certificate through the Department of Veterans Affairs website, and most experienced lenders can also help determine eligibility and secure the certificate.
To determine if this loan is the right choice for you, check with a VA approved lender for more information. For a list of local professionals, visit the Greater Lansing Association of REALTORS® at www.lansing-realestate.com.