A “VA” loan is a loan that is provided to service members, Veterans and surviving spouses so that they can be homeowners.
These types of loans are provided by private lenders (banks and mortgage companies).
The Veteran’s Administration will guarantee a portion of the home loan to assist with loan terms. This means that if you default on your loan with your lender, the VA will assume some of the debt obligation. In other words, the VA tells the lender that you are a good risk versus a bad risk and that if you default, they will take on the debt, making the loan more favorable to the lender.
VA loans help purchasers by reducing their costs that could impact their ability to purchase. The VA does this by offering competitive interest rates, zero down payment and no private mortgage insurance.
These purchase loans are available for homes that will be used as primary residences for service members, their spouses and/or dependents.
Eligibilty requirements include satisfactory credit, ability to repay, and a valid Certificate of Eligibility (COE).
How do you get a COE? Veterans are required to show a copy of their DD- 214 while active service members can use a statement of service from their adjutant, personnel office, or commander of the unit (or higher). Click here for more details on how to get your COE.
One of the first questions you may have when looking to secure a loan may be; “What is the difference between a prequalification and a preapproval?” Watch the video below to better understand:
Things to know:
- The lender can require a down payment even if the VA doesn’t.
- There is a ONE TIME VA funding fee that can be “rolled into” the loan.
- There is NO mortgage insurance.
- VA home loans aren’t ONE TIME loans, you can have more than one in a lifetime.
- If you receive VA disability compensation, you are exempt from the VA funding fee.
- VA loans are assumable be eligible people.
- NO MAXIMUM DEBT RATIO.
- No maximum loan amount BUT the VA limits is guaranty up to $453,100 without a down payment.
- No minimum credit score.
Just because you may not have to pay a down payment or mortgage insurance, that doesn’t mean that there won’t be costs to you to get a VA loan. For example, lenders can charge you a 1% flat fee or a “loan origination fee”. There are other fees as well.
Fees can be included for:
- Appraisal
- Inspection
- Recording documents
- Credit reports
- Misc. prepaid items
- Engineering surveys
- Well and Septic Inspections
- Hazard insurance
- Flood Zone determinations
- Stake survey
- Title examination & title insurance
- Cost to wire funds
- VA funding fee (waived if 10% or more disabled with the VA)
- Mortgage Electronic Registration System (MERS)
Something to keep in mind is that you can request that the seller assist with some or all of these closing fees. This is considered asking for “concessions”. Your Realtor can negotiate this for you. (Be sure to put your Lender and your Realtor in contact with each other so they can communicate and best negotiate on your behalf.)
We spoke to Rob Yates at Genisys Mortgage Professionals. He helped us to understand that the VA helps to ensure against loss for the bank, “this is their mortgage insurance, so-to -speak”.
Yates told us that, “Even in a zero down payment situation, buyers will still have up front costs. The VA still has closing costs but they allow sellers to help pay for those.” He said,
“the VA allows for 4% seller concessions [of the purchase price], but buyers still pay up front for an EMD, they still pay for appraisal and certificate of reasonable value.” All of these costs being covered is dependent on appraisal. If the appraised value comes in high enough to cover the agreed upon sales price and loan amount, VA buyers can get their POC (paid- out- of- closing costs/up- front costs) paid back at the closing table, when it is all said and done. But, buyers have got to have money in their account ready to go from the purchase agreement starting with the EMD.”
Yates also advised us that while a VA loan may not have a minimum credit score requirement, most lenders do. Most lenders require at least a credit score of 620 before you can be approved.
Lastly, when working with the VA you should be aware that there are the Minimum Property Requirements (MPRs). These MPRs help to ensure that the home you’re purchasing is safe and sound. These requirements are looking for things like peeling paint, holes in the wall, and exposed electrical outlets. The appraisal would look for these items to determine if the home will be approved for financing. Here is a great resource to learn more about MPRs: https://www.veteransunited.com/education/processing/
For more information on VA home purchase loans, here are some great sources:
Resources:
https://www.benefits.va.gov/homeloans/resources_veteran.asp