Did you know there are over 21 million veterans and nearly 1.35 million active-duty military who could be eligible to purchase a home with a VA loan? However, many do not understand how it works which prevents them from trying to obtain homeownership. Here are a few facts to help:
1. No down payment or mortgage insurance
One of the biggest advantages! You don’t need a down payment. Most mortgage programs require at least 3.5 percent to five percent down. A huge savings for our veterans!
With a VA loan, you also avoid steep mortgage insurance fees. At 5 percent down, private mortgage insurance (PMI) costs can be $150 per month or more on a $250,000 home, depending on the buyer’s credit score. This buyer could afford a home worth $30,000 more with the same monthly payment - simply by eliminating PMI. Using a VA loan saves you money upfront and increases your buying power.
2. Use your benefit more than once
You have a total entitlement of $484,350 in El Paso for example. The amount can differ based on location. You can use it as many times as you have eligibility. Here are a few examples:
Assume you purchased a home with a VA loan. However, you have outgrown it, or you wish to downsize. When you sell the home and pay off the VA loan completely, you can re-use your benefit to buy another home. Your entitlement is restored in full.
Paid off your home? No problem! Eligible veterans and service members can receive a one-time restoration when they pay off the VA loan but keep the home. This also applies if you have refinanced the VA mortgage with a non-VA loan.
What if you bought a home at one duty station, rented it out to PCS and want to purchase another home? You may have enough entitlement to use your VA loan for the new home. A lender can calculate your maximum entitlement before you begin shopping. There are some requirements on using subsequent entitlement, so let’s get that updated before house hunting.
Other scenarios could apply - like buying in the same city. You can always contact us for any situations for which you are uncertain.
3. No expiration date
Once you have earned eligibility for the VA home loan, it never expires. Those who served 20, 30, even 50 years ago often wonder whether they can still buy a home today if they never used their benefit. If eligibility can be established, the answer is yes.
VA Loan eligibility is based on the length of time served and the period in which you served.
To check eligibility, you will need your DD Form 214. With that form, a VA-approved lender can request your VA Certificate of Eligibility or you can request it directly from the VA’s eBenefits website. You may be eligible to buy a home using a VA home loan even if you served long ago. It is always best to check with a trusted lender for available options.
4. Surviving spouses could be eligible
Un-remarried spouses of service members who were killed in action can buy a home with zero down payment and no mortgage insurance. They are also exempt from the VA funding fee.
5. VA Loan Rates Are Lower
VA loan rates are typically lower than those of conventional or FHA loans. The VA backs the mortgages, making them a lower risk for lenders. Those savings are passed on to veterans and service members.
6. Local Vendors can process VA Loans
The VA home loan is unlike most other VA benefits. This benefit is available from private companies, not the government itself. The Department of Veterans Affairs does not take applications, approve the loans, or issue funds. Private banks, credit unions, and mortgage companies do that.
The VA provides insurance to lenders. It’s officially called the VA guaranty. The VA assures the lender that it will be repaid if the veteran can no longer make payments. In turn, lenders issue loans at superior terms. In short, a VA loan gives you the best of both worlds. You enjoy your benefit but have the convenience and speed of working with your chosen lender.
7. Buy, refinance, or home equity loan
The VA home loan benefit is not just for purchasing homes - you can also use it to refinance your existing mortgage. Eligible homeowners can use it to refinance a non-VA loan to remove mortgage insurance. It usually requires 10% equity to refinance a non-VA loan to a VA loan.
Homeowners with a VA loan can use the Interest Rate Reduction Refinancing Loan, or IRRRL, to easily drop their rate and payment without an appraisal, pay-stubs, W2s, or bank statements. The VA streamline refinance gives VA loan holders a faster, cheaper way to access lower refinance rates when rates fall. Be sure that you have a benefit when you refinance. There must be a net tangible benefit to refinance. You must understand the terms of the new loan being offered. Many veterans get taken advantage of during this process so be sure to check your loan balance, fees, and payment against the new opportunity. If you do not save $100 or more per month, the savings will not outweigh the costs financed into your loan. If you may be PCS’d or if you are considering selling your home, it may not be beneficial to refinance the loan. Be sure to consult a trusted advisor before signing to refinance your home.
Don't currently have a VA loan? The VA cash-out loan is available to eligible veterans in some states. This can be used to turn your home’s equity into cash. The VA cash-out loan amount can be up to 100 percent of your home’s value. Homeowners can use the proceeds for many options, such as home improvements, college tuition, or a new car. Don't hesitate to consult your trusted Real Estate or Mortgage professional to determine if this loan is available in your state.
8. Lenient guidelines for lower credit scores, bankruptcy, & foreclosure
Surprisingly, unlike many loan programs, a lower credit score, bankruptcy, or even foreclosure does not disqualify you from a VA home loan. This will differ between lenders because each will have its rules on past credit issues. However, VA guidelines do not state a minimum credit score to qualify. This gives lenders leniency to approve loans with lower scores. Also, VA considers your credit re-established when you have established two years of clean credit following a foreclosure or bankruptcy.
Many homeowners experience bankruptcies and foreclosures due to a loss of income, medical bills, or unforeseen emergencies. Fortunately, these financial setbacks don’t always permanently bar VA-eligible home buyers from ever owning again. However, with a VA loan, you may have to pay back the amount owed at the time of foreclosure to regain your eligibility.
9. Funding fee waivers
Instead of a down payment, the VA typically charges a funding fee to defray the cost of the program and make home buying sustainable for future veterans. This fee is between 0.50 percent and 3.3 percent of the loan amount. It is also dependent on service history, the number of times you have used your VA entitlement, military service status and the loan type.
There are VA funding fee exemptions such as disabled veterans who are receiving any compensation for a service-connected disability.
Additionally, veterans who are eligible for disability compensation, but are receiving retirement or active duty pay instead, are also exempt from the fee.
10. Buy a condo, town home, multi-unit or mobile home with a VA loan
You can buy many types of properties with a VA loan. Types include single-family homes, multi-unit properties up to four units, condos, and manufactured homes.
For condos, the VA maintains a list of approved condominium communities. Veterans can search by city, state, or condominium name on VA’s condo search tool.
As a veteran or service member, it's beneficial to consider the array of home types when shopping for a home. For more information using your VA loan, reach out to us at 915-873-2772 or [email protected] We love serving those who have served us!