When you’ve served in the military and are considering the purchase of a new home, you may benefit from a VA loan.
Military personnel and their spouses have the opportunity to buy a house with little or no money, less-than-perfect credit history, and the ability to re-use those benefits repeatedly with no expiration date.
Here are some facts about a VA loan.
- What is a VA Loan?
- Who Qualifies for a VA Loan?
- No Down Payment
- Lower Closing Costs
- More Relaxed Credit Requirements
- No Private Mortgage Insurance
- No Pre-Payment Penalty
- You Can Re-Use VA Loan Benefits
- VA Loan Benefits Don’t Expire
- Funding Fee for a VA Home Mortgage Loan
- Acceptable Property Types for VA Loans
- Have Questions? Ask Marilyn!
What is a VA Loan?
A VA loan isn’t like other home mortgage loans. VA loans allow qualifying servicepersons to purchase a home, even when there’s little or no cash on hand, or less than perfect credit.
The Veterans Association does not accept applications, does not fund the loan, and doesn’t accept loan payments. On the contrary, you’ll obtain a home mortgage loan from a bank, credit union, mortgage broker, or other lenders who work with VA loans.
The Department of Veterans Affairs, based on the tenure and type of your service, guarantees the lender that the VA will repay the lender, up to the amount promised, in the event that you default on payments.
Lenders find security in providing loans to service members whose loans are backed by the government. This allows lenders to be more relaxed with their requirements for approval.
Who Qualifies for a VA Loan?
VA loans are applicable to active duty military and honorably discharged veterans. You must have served no less than 90 consecutive days of active service in wartime, or for active service in peacetime, 181 consecutive days.
If you’re in the National Guard or Selective Reserve, you must have served for more than six years.
Benefits may also be applicable to spouses of military members who died in the line of duty, provided the spouse has not remarried. And, in these instances, the Funding Fee is waived.
No Down Payment
One of the biggest money-saving factors of a VA loan is that it completely wipes out the need for a down payment.
Traditional loans require buyers to pay 20 percent of the value of the home – money out-of-pocket. On a $240,000 home, your down payment would be $48,000.
However, with a VA loan, that down payment is waved, and you pay nothing.
Lower Closing Costs
All lenders charge for “closing costs” in a residential real estate purchase. Closing costs can include appraisals, inspections, attorneys, escrow agents, real estate agents, property taxes, private mortgage insurance, and more.
The Department of Veterans Affairs puts limits on what lenders can charge for closing costs. Because of this, your closing costs will be less expensive.
Another way you can lower closing costs is by shopping lenders. Since a VA loan is not a government loan, you have the ability to compare the rates and terms of multiple lenders to find the right lender for you.
You’ll still be responsible for some cash-out-of-pocket closing costs, but they won’t be as high.
More Relaxed Credit Requirements
There are several factors that could derail a buyer’s attempt to get a traditional home mortgage loan, such as a poor credit score, bankruptcy, or foreclosure.
Standard home mortgage loans require a credit score of no less than 620 to qualify.
The VA guidelines don’t have a minimum credit score to qualify, giving lenders more flexibility to approve applicants with less than ideal credit. But each lender is different, which is another good reason to compare lenders before applying.
Additionally, the VA is lenient with re-establishing credit from a bankruptcy or foreclosure, considering it re-established within two years of having a good credit history.
No Private Mortgage Insurance
With most lenders, if your deposit is less than 20 percent, or if the lender has agreed to incorporate closing costs into the loan, you have to pay for private mortgage insurance or PMI.
Private mortgage insurance is included in your monthly mortgage payment, making your payments higher.
With your VA loan, even with a zero deposit, you’re not required to pay PMI, making your monthly payments lower.
No Pre-Payment Penalty
In many situations, if a home mortgage loan is paid off early, there’s a pre-payment penalty based on a percentage of the interest on the loan.
With a loan backed by the Department of Veterans Affairs, you can pay off the balance any time you’d like without paying an additional pre-payment penalty.
You Can Re-Use VA Loan Benefits
VA loans are not a one-time benefit. When you pay off one VA loan, you can apply for another. You can do this as often as you need.
The same is true if you refinance a VA loan with a traditional loan, paying the VA loan off completely. Once the VA loan is paid, the full entitlement is restored.
VA Loan Benefits Don’t Expire
There are no time constraints on taking advantage of your VA loan, whether you’re using it for the first time or the fifth. Whether you’re active duty or retired for 20 years, your VA benefits remain intact without expiring.
Funding Fee for a VA Home Mortgage Loan
You won’t pay a down payment, may have lower interest rates, easier approval, and lower closing costs, you will still be responsible for a VA Funding Fee.
The Funding Fee for a VA loan serves multiple purposes, including ensuring that the loan requires no monthly mortgage insurance and down payment.
Your fee is based on the size of your VA loan down payment, as well as if it’s the first time you’re taking advantage of the VA loan benefits.
There are exceptions. Veterans who are disabled or receiving compensation for disabilities that occurred during service do not have to pay the VA Funding Fee.
Acceptable Property Types for VA Loans
While VA loans come with many relaxed requirements, there are some stipulations on the type of property you can purchase. For example, you must use the house as your primary residence, not as an investment property or vacation home.
Vacant land alone doesn’t qualify unless it’s used in conjunction with a construction loan.
Properties like manufactured or modular homes are based on the lender’s approval.
But you can buy a single-family home, a condo, manufactured homes (based on lender).
As a military member or military family, you’ve made great sacrifices and have earned the right to certain rewards. One of those rewards is a VA loan for a home mortgage.
The Department of Veterans Affairs doesn’t supply the loan, but they do offer a lender a guaranty that gives the lender assurance. They also allow lenders to have relaxed terms and conditions.
With a VA loan, you have no down payment, lower closing costs, lower interest rates, no private mortgage insurance, no pre-payment penalty, and you can use your benefits time and time again without worrying that they’ll expire.
A VA loan allows a buyer with no substantial savings and compromised credit to qualify for a home mortgage where traditional lenders might deny your application due to low credit, bankruptcy, or foreclosure.
Compare VA-approved lenders to discover the differences in interest rates and closing costs.
Ask your real estate agent for detailed information about how a home mortgage loan through the Department of Veterans Affairs might be the best option to finance your new home.
Have Questions? Ask Marilyn!
Your real estate agent is the best source of information about the local community and real estate topics. Give Marilyn Richesin a call today at 360-386-2045 to learn more about local areas, discuss selling a house, or tour available homes for sale.