You’ve probably heard that buying a home is the single largest investment you’ll ever make, and if you’re like the majority of new homebuyers, the entire process seems a bit intimidating. How much house can you afford? Where do you want to live? What type of mortgage is right for you? Veterns have an additional question to answer – is a VA loan right for me?
The basic intention of the VA home loan program is to supply home financing to eligible veterans and to help veterans purchase properties with no down payment. Teresa Cowart, one of the owners of Re/Max Accent, sat down with Jeff Stodghill of Certainty Home Loans to discuss the benefits and process of VA loans.
Who qualifies for a VA loan?
Eligible veterans, active-duty military members, and qualified surviving spouses can apply for VA loans. While the VA doesn’t set a credit score benchmark, most lenders look for a FICO score of 620, a considerably lower benchmark than what you’ll find for traditional loans.
The program is designed for veterans who meet the minimum number of days of completed service:
- You have served 90 consecutive days of active service during wartime.
- You have served 181 days of active service during peacetime.
- You have more than 6 years of service in the National Guard or Reserves
- You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
Getting pre-approved for a loan is the first step for any homebuyer, but those seeking a VA loan also need to be pre-qualified.
“We’ll request a certificate of eligibility from the VA,” explains Stodghill. “If they’re in-service it can be a 24-hour process, and if they’re separated from service it can be 48-72 hours. If they’re separated from service they’ll also need their DD Form 214, which is their Discharge Papers and Veterans Separation Documents.”
Why would you want a VA loan as opposed to a conventional mortgage?
“Probably the greatest benefit of the VA loan is the zero-down payment and there’s no monthly mortgage insurance, which saves you money on your monthly payment,” says Stodghill.
Typically, when a homebuyer makes a down payment of less than 20 percent, the lender requires Private Mortgage Insurance, or PMI. The VA loan allows veterans 103.3 percent financing without PMI. On a $200,000 mortgage, you can save on average $150 a month.
Since VA loans are backed by the government, their guidelines account for borrowers whose finances may have been impacted by their service. The program allows for more breathing room when it comes to debt-to-income ratio, credit scores, and assets. Interest rates for VA loans are typically lower than on traditional loans as well.
The VA loan allows veterans 103.3 percent financing without private mortgage insurance (PMI) or a 20 percent second mortgage and up to $6,000 for energy efficient improvements.
Potential Hurdles of VA Loans
Homes must meet a series of Minimum Property Requirements (MPRs) to qualify for a VA loan. These home requirements are in place to assure that veterans and military families have a safe, structurally sound, sanitary place to call home.
“Appraisals are probably the largest hurdle of a VA Loan,” says Stodghill. “The value of the home has to be there. It might be a hurdle, but the VA really considers this a benefit. They want to make sure the property is move-in ready.”
MPRs are concerned with big-ticket items, like ensuring there’s suitable heating, safe water, a suitable roof, or anything that presents immediate or near-immediate problems for veterans and their families. These requirements can vary based on geography and other factors.
VA Loans for the Fixer Upper
With the popularity of shows like Fixer Upper, more people want to buy homes that need renovations and do it themselves. Generally, any problems with a property need to be corrected before a VA loan closes, but veterans can secure exemptions for some MPRs. These exemptions should be treated more like extensions, as the problems will ultimately need to be corrected.
Certainty Home Loans has implemented a couple of programs to help veterans create their home of their dreams.
“The first we call an Escrow Hold-Back. After closing we setup a certain about of escrow to do the VA repairs, to make it an insurable VA Loan,” says Stodghill. “About six months ago we introduced a VA Renovation Loan, where we can do a full blow renovation on a VA Loan.”
While VA loans feature no down payment, no mortgage insurance, and more forgiving credit requirements than most other loan types, they still may not be the right loan choice for you. We’re always happy to refer clients to trusted lenders like Jeff Stodghill to ensure you always have the information you need to make an informed decision.
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