An Overview of VA Loans
When searching for a house, military borrowers have a very powerful ally. Access to possibly the best lending program out there: VA loans. No down payment and no mortgage insurance. You can go back and get the benefit again (as long as you have paid off your previous VA loan). Getting this loan can be a real financial leg up for service members.
But there are a few guidelines that you need to know about if you are going to seek a VA loan. All Shores has put together this overview of the requirements, along with links to more detailed resources.
What you might not know about VA loans:
- The loans are for primary residences only
- They are possible to obtain if you have declared bankruptcy or been foreclosed on before
- They come with a fee: The VA Funding Fee. Typically about 2% of the loan amount
- There is no prepayment penalty
- There are MPRs, or minimum property requirements, for a VA house.
What are the requirements?
Basically, you need to be a current or retired veteran with a good service record. Your time of service, duty status and character of service all have influence on the specific benefits you can receive.
To be eligible, you need to have fair credit, enough income to make the monthly payments and you need to provide a valid Certificate of Eligibility. Here is a list of evidence you need to get the certificate.
What are the benefits of a VA loan versus a conventional loan?
The number one benefit is the ability to put no money down. And that is a pretty darn valuable benefit. It allows you to take possession of a home with just enough cash for closing costs. And while the VA funding fee may take some of the joy out of not paying mortgage insurance, this can still add up to a very good deal.
If I am a veteran, am I guaranteed a loan?
No, not necessarily. You still need to have decent credit and an income robust enough to make the monthly payments.
What is the deal with the VA Funding Fee?
The fee helps keep the loan program afloat. It is required on both purchase loans and refinances. But don’t worry too much: the fee can be rolled into the loan amount and paid off over time. And the interest rate tends to be a quarter or a half percent lower than conventional loans, so it tends to work out in the end.
Issues Specific to VA Loans
When you get to the contract stage, make sure you have the proper purchase agreement that covers the VA caveats.
You might want to work with your lawyer to add in a clause into the contract that relieves you of the obligation to buy the home in the event that you cannot secure a VA loan.
You are going to need a VA appraisal. That is different from a typical appraisal. The process does attempt to determine the home’s true market value, but it also makes sure that the property hits the minimum requirements for a VA loan. It is NOT the same as a home inspection. Make sure you get one of those too.
Tell us about your experience applying for and getting VA loans in the comments.