Buying a home with a VA loan
Hello Military Community,
In an email I received last week, I was told how they enjoyed my website and was asked to update it with information about VA loans. So I thought I’d share some of that information with you today.
The VA Loan Program is designed to provide home financing for eligible active duty military, veterans, and their spouses. These loans are made by private lenders and guaranteed by the Veteran’s Administration, and provide an easy way for military borrowers to get financing of up to $417,000 of their total loan, and up to $1,094,625 in “higher cost” counties.
You should remember that a VA Loan is NOT a loan made directly by the federal government or the Veteran’s Administration. It is a loan made by a conventional mortgage lender that is guaranteed by the federal government. After a qualified applicant finds a house and makes arrangements for the loan through their lender of choice, the property is appraised by the Veterans Administration to ensure that it is safe and a good value. If the house passes the inspection, the VA agrees to guarantee the lender against loss of principal should the buyer default.
The first thing a veteran needs to do to obtain a VA home loan is fill out VA Form 26-1880, a request for a Certificate of Eligibility. This certificate is issued ONLY through the Veterans Administration. Veterans, active duty, guard or reserve, and military spouses potentially qualify for this certificate. Keep in mind that the Certificate of Eligibility, while necessary, only allows an eligible individual to apply for a home loan; it does NOT guarantee loan approval.
Eligibility for the Certificate is based on a veteran’s military service. Please see my website for the common categories of those who normally qualify for a Certificate of Eligibility.
A few of the other legal requirements to be eligible for a VA Loan are:
• The loan must be for an eligible home purchase
• The homeowner must intend to occupy the home as a home within a reasonable period of time after closing the loan.
• The applicant must be a satisfactory credit risk.
• The income of the applicant and his or her spouse (if there is one), must be sufficient to cover payments, maintenance costs, and take care of family obligations.
• No one but the veteran and their spouse can be on the loan.
• In addition to the certificate, a loan applicant will also need to do the usual documenting of their credit, savings, and employment information that comes with other loans. This generally includes: At least a 620 credit score, no foreclosures within the last 3 years, and no bankruptcy within the past 2 years.
While a VA Loan can help a service member purchase a home, that’s not all that it can do. Here are some examples of what it can be used for:
• To buy a home or residential condominium
• To build a new home
• To renovate an existing home using cash-out refinance.
• To refinance an existing home loan to take advantage of a better rate.
There are many obvious and not so obvious benefits to a VA Loan. Here are a few of the major ones:
• You do not have to provide a down payment for the property.
• You are eligible for a percent of financing if your loan falls within the maximum loan limits of your area (and that includes the fee). ????
• Mortgage insurance is not necessary even though you may not be providing a 20% down payment.
• The interest rates are competitive with other loans.
The only catch to a VA Loan is that a mandatory funding fee must be paid to the VA equal to 0-3.5% of the loan. A veteran can be exempt from the fee if he or she is receiving VA-based disability compensation. This fee can be paid in cash or it can be financed into the loan amount. This fee goes directly back to the VA and essentially funds the VA guarantee program.
It is important to note that the closing costs on the loan cannot be included in the loan. The seller can pay these fees for the borrower; otherwise the borrower is responsible for things like the VA appraisal, credit report, survey charges, and other common closing fees.
You should also be aware that the service members “Certificate of Entitlement” can ONLY be used for one house at a time. However, there is some work-around to this situation. Please see my website for more information.
An amazing thing about the VA Loan Program is that it has the lowest foreclosure rate of any of the four major streams of lending programs. This can be attributed to the Service Member’s Relief Act and its protections to active service VA Loan borrowers from financial problems that may occur as a result of their active duty commitments and for the VA’s interest in keeping ALL veterans and their families in their homes.
Please see my website for other sites providing information about the steps to purchase a home and use the VA Loan Program.
Today’s article covers many aspects of the VA Loan Program, but does NOT cover every aspect of the general mortgage process. Save yourself some cash and some headaches by educating yourself on the general mortgage process and/or speaking to a certified mortgage dealer that specializes in VA Loans. I wish you well in your new home ventures. Blessings from my family to yours.
If you have any questions or concerns or would like to share a story or situation, contact me at Kim@MilitaryResourceBooks.com and visit my website for updated information and other Resources not listed in my book.