How the VA Can Help you Buy a House
A 20 percent down payment on a house of any price is painful for most homebuyers. While alternatives can always be pursued, it is difficult to compete with the benefits of a VA loan, which does not require a down payment at all. “This historic, government-backed loan product is arguably the most advantageous mortgage on the market, which is fitting given it’s a benefit for those who have proudly served our country, says Chris Birk, director of education for Veterans United Home Loans.
Who qualifies for a VA home loan?
Veterans, active duty service members, and surviving spouses of a veteran may be eligible for a VA loan. More specifically, at least one of the following conditions must be met, according to Amy Klein, mortgage loan officer with OMT Mortgage in Eugene, Oregon:
- You have served 90 total days of active service during wartime.
- You have served 181 continuous days of active service during peacetime.
- You have more than six 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.
In addition, you must not been discharged under dishonorable conditions.
The benefits of a VA mortgage
“These loans are different than other standard loan types purely because they are guaranteed by the VA and are one of the only ways to get into a home with no money down,” says Klein. As an additional perk, veterans are still able to take advantage of competitive low interest rates on the market. One more bonus: “Most loans require appraisals to be paid for out of pocket but, with a VA loan only, these can be added to the loan, thus making it truly a $0 down loan,” says Klein.
When the down payment is next to nothing, homebuyers usually suffer under the weight of mortgage insurance. “All FHA loans carry monthly mortgage insurance and most conventional loans at 80 percent or higher loan-to-value have mortgage insurance,” says David J. Hosterman, branch manager of Castle & Cooke Mortgage in Greenwood Village, Colorado. With a VA loan, even though a down payment is not required, no mortgage insurance is imposed.
There is also a far more forgiving credit underwriting process for a VA loan, which can make that dream home far more attainable. “Most lenders only require a 620 credit score,” says Michael B. Taylor, branch manager of First Home Mortgage Corporation in Millersville, Maryland. “A VA funding fee is financed into the loan, but veterans receiving disability do not pay the funding fee,” says Taylor. “The seller can pay all closing costs and up to 4 percent toward prepaids, discount points, and anything else the veteran might need.”
Requirements for other types of VA loans
For the homeowners who are seeking a different type of loan, the VA guarantees two major refinance options — the Interest Rate Reduction Refinance Loan (IRRRL) and the Cash-Out refinance. “The IRRRL, known as a VA Streamline, is only for homeowners with VA-backed mortgages. This no-frills refinance exists to get veterans into a lower rate loan (or into a fixed-rate mortgage). Qualified homeowners can finance their closing costs and may be able to close without an appraisal or credit underwriting,” says Birk.
The VA Cash-Out refinance allows qualified veterans to refinance their existing mortgage, even if it’s not a VA loan, and extract cash from their equity. “Qualified veterans may be able to refinance up to 100 percent of their home’s value. Veterans with conventional and FHA loans can use this product to refinance into the VA program without having to take cash out,” says Birk.
Additional programs that benefit house hunters or homeowners, according to Birk, are the VA’s Specially Adapted Housing (SAH) and Special Housing Adaption (SHA) grant programs which help qualified disabled veterans construct or adapt a home to meet their living needs. Then there is the Native American Direct Loan (NADL) program, which provides loans directly to qualified Native American veterans. These no-down payment loans come directly from the VA rather than a private lender.
What about the fine print?
There are a few drawbacks and inconveniences when it comes to VA loans, but nothing that could really outweigh the benefits. “In our current real estate market, VA loans are not looked on as favorably as conventional loans, particularly conventional loans with a higher down payment, such as 10 percent or higher,” says Tom Hume, a realtor with The Hume Group in Tacoma, Washington. The appraisal of a home can take longer for a VA buyer, which means that all involved will have to wait a very long time to close the sale. Sometimes, a closing date extension must be requested.
“VA appraisals are viewed by many agents as being more likely to come in below the agreed price and more likely to be subject to the seller doing work orders over and above what they agreed to on the inspection negotiation,” says Hume. Sellers may go with a conventional offer or cash to avoid one extra road block with a VA home loan.
There are also some restrictions when it comes to the type of property you can purchase. “These loans almost exclusively have to be used for residential property and not for business purchases,” says Evan Harris, co-founder of SD Equity Partners in San Diego. “There are limitations on investment properties as well, as the homeowner must live at the property for a certain period of time.”
Chances are, the individuals and families that want very much to purchase their own home with as little financial strain as possible, and without having to wait years to save up every dime, will find these restrictions perfectly reasonable. “The combination of no down payment and more flexible credit requirements continues to open the doors of homeownership to millions of veterans who might struggle to obtain home financing,” says Birk. “Veterans and military families may want to gravitate toward companies and real estate agents that truly know VA loans and how to help veterans get the most from their hard-earned benefits.” More information is available from the U.S. Department of Veterans Affairs.