What you need to know About VA Loans
Since its inception in 1944, the VA loan program has helped more than 20 million veterans and their families experience the pride of home ownership. While the VA loan process is quite similar to that of a conventional loan, there are differences and advantages that some veterans may not be aware of.
Significant Savings
VA loans are mortgage loans issued by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. One of the biggest advantages of a VA loan is that qualified buyers are able to buy a home with virtually no money down. In fact, about 90 percent of VA buyers purchase a property with no down payment.
Paul Dankert, mortgage banker with Chemical Bank, says that in addition to this key feature, there are some other big advantages.
“The VA loan program offers significant benefits to veterans and military families who might otherwise not be able to secure financing,” he said. “Not only do qualified applicants have the advantage of no down payment, but they are able to that without the penalty of private mortgage insurance (PMI).”
This feature is different to other government-backed loans, like those backed by the Federal Housing Administration (FHA) and the U.S. Dept. of Agriculture (USDA), which both enforce PMI. This advantage is often overlooked, but the benefit can mean significant monthly savings for VA buyers.
Dankert says that lenders are also able to offer lower interest rates to qualifying VA borrowers.
“Rates could be anywhere from 0.5 to 1 percent lower than conventional rates,” he said. “The VA also limits what veterans are charged as far as mortgage fees and closing costs, so borrowers will typically find some savings there as well.”
Although the costs of acquiring a VA loan are generally lower than other conventional loan programs, there is a one-time funding fee paid directly to the VA, which is “used to offset the few loans that go into default, and further reduces the cost to taxpayers, ensuring the VA Home Loan program continues for future generations.” The amount varies, depending on the nature of the borrower’s service, if any down payment was made, or whether the buyer has a prior VA loan. Borrowers with service-connected disabilities are typically exempt from the funding fee.
While there is no maximum loan amount, the VA does limit its guaranty. Depending on eligibility, in most areas of the U.S., a veteran can borrow up to $417,000 without a down payment.
Who is Eligible?
The sad fact is that many eligible veterans are missing out on this beneficial program. REALTOR.com says that VA surveys show that about 1 in 3 home-buying veterans don’t know about this benefit. While it may not necessarily be the best fit for every veteran borrower, it’s a great option to explore.
According to the VA, eligible applicants include: veterans who meet length of service requirements; service members on active duty who have served a minimum period; certain Reservists and National Guard members; and certain surviving spouses of deceased veterans. There are other groups that may be eligible, so check with your lender or contact the VA Eligibility Center at 1-888-768-2132.
Contact the Professionals
Brooks Warner, REALTOR® with Keller Williams, has experience working with veteran home buyers and says the first thing any potential VA borrower should do is enlist the help of an experienced lender and REALTOR®.
“It’s important to work with professionals who have experience with VA loans,” he said. “Just like any government-backed loan program, there are guidelines and requirements that we know well. It helps make the process go much smoother and can save you time and money.”
For instance, Warner says similar to other government loans, the VA program has property requirements.
“VA borrowers will have a difficult time buying a real fixer upper,” he said. “Cosmetic issues are one thing, but an appraiser has to sign off that the structure is sound and that it is a fully functional home. REALTORS® that have experience with VA loans have an idea of things that may be red-flagged in an appraisal and we can help save time by avoiding properties that may not pass the requirements.”
Warner says there are also certain documents veterans will need, like a DD Form 214 that shows you have fulfilled your service requirements. An experienced lender and agent will help ensure you have the necessary paperwork.
Regardless of the type of loan used, any buyer should start by contacting a trusted lender to discuss their financial situation, talk about loan options, and get pre-approved. This is important because it will give you an idea of how much home you can afford, and will help your REALTOR® narrow your search.
“Make sure you are working with a lender and agent you are comfortable with,” said Dankert. “Communicate openly with your team and ask questions. Our job is to put you in the best possible situation, and together, we can find the right loan option for you and your family and get you into your dream home.”
If you are interested in purchasing a home, visit the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com to find a listing of area REALTORS® and mortgage professionals.