We recently exchanged some great dialogue with the folks at Money about an area of mutual passion: housing for active-duty and veteran service members. VA loans were primarily discussed, including their advantages and the underuse of these loans by those who are eligible to benefit from them.
Money was gracious enough to provide key takeaways from the topic of VA loans and links to a couple of very interesting articles on their website, www.money.com.
So, what are VA loans?
A VA mortgage loan is one of the most useful military benefits, proving to be easier to qualify for and cheaper than most conventional loans.
- VA loans are backed by the U.S. Department of Veteran Affairs and are available to service members, veterans, and eligible surviving spouses
- VA loans offer a unique set of benefits and protections you can’t get with a conventional loan (lower closing costs, no PMI, lower rates, no down payments, flexible credit requirements)
Why Don’t All Veterans/Service Members Use Them?
Around 21 millions active-duty or service members live in the U.S., but only around 4% of those originated a loan under the VA home loan program during 2020.
Eligible veterans and service members often bypass this benefit due to a number of reasons, including lack of awareness or eligibility concerns.
There are many different VA lending programs that are backed by the U.S. Department of Veteran Affairs.
While most VA loans don’t require a down payment or private mortgage insurance, one of the common misconceptions around VA loans is that there aren’t any closing costs at all. The VA funding fee is one of the out-of-pocket expenses you will need to incur during closing.
Here are some other closing costs to consider:
- Real estate commissions
- Brokerage fees
- Loan origination
- Discount points
- Title fees
Seven Tips for Veterans Considering the VA Loan Program
- You can start the mortgage process without the Certificate of Eligibility (COE)
- This document certifies that you’ve fulfilled the minimum military service requirements to be eligible.
- You can get pre-approved without the COE as it is verified later in the process
- Your credit score matters but won’t prevent you from qualifying
- Under the VA loan program, lenders tend to be more flexible and look at your overall financial situation.
- Higher credit scores will undoubtedly bring you better deals.
- Have enough money to pay for closing costs
- VA loans are not free from out-of-pocket costs, and you will still be responsible for certain fees, like loan origination fees, application fees, discount points, hazard insurance, title fees, appraisals, and real estate fees.
- The VA funding fee ranges between 0.5% – 3.60% and is obligatory
- Make sure you shop around for better rates
- A crucial step in order to find the best interest rates and terms
- Consult with the many reputable lenders that exclusively cater to military personnel
- Hire a real estate agent with VA experience
- Find someone that knows the ins and outs of the VA loan process so that you can rest assured that your application will go smoothly.
- Choose a property that meets the VA’s safety requirements
- The VA requires certain additional safety requirements for homes under this program.
- Rental/Vacation homes cannot be purchased through the program
- You can use the benefit more than once as long as you meet the eligibility requirements
- Move in to your new home within 60 days
- You must either personally live in the property or intend to move in within a reasonable time (60 days)
- Your spouse or dependents may satisfy this requirement by moving in first