Take advantage of your most powerful VA benefits, the VA Loan
If you are a Servicemember, Veteran, surviving spouse, or beneficiary and are interested in purchasing a home, you are in luck. The U.S. Department of Veteran Affairs has created multiple opportunities to help you become or remain a homeowner. Here is a breakdown of the basic information that you should know to get started with a VA home loan.
Benefits of the VA loan
VA Home Loans come with some fantastic benefits. For starters, if you are not purchasing the house for more than the appraised value you are not required to make a down payment. Saving for a down payment is one of the main reasons that people are waiting longer than ever to purchase homes, and a VA loan lets you bypass the process. The second benefit is no private mortgage insurance (PMI). Most traditional mortgage loans will require a buyer to have PMI if they do not have 20% equity in the home. This insurance raises your monthly payment. However, a VA loan allows you to obtain 100% financing for your home with no PMI. Let me say that again, 100% financing! That might be the single greatest perk of using the VA loan.
In addition, VA loans offer competitive interest rates and easier to meet requirements for approval. The VA loan program also sets limits on how much you are required to pay for closing costs, including the seller paying the closing costs. Should you decide to pay your mortgage off early the lender is unable to charge you any fees for doing so.
If you begin to have problems making your mortgage payment there are some VA benefits that might be able to assist you as well. It is better to ask your lender about this then it is allowing payments to go unpaid.
Types of Purchases Eligible
VA Loans can be used for many different types of purchases as long as the property is intended to be used as your primary residence.
- Condominium or Townhouse – To use a VA loan on this type of purchase it needs to be a VA-approved project. That means the entire building will need to be approved by the VA. Check to see if this has already happened to the building in the past here, and if not, your lender can request approval from the VA directly.
- New Construction – There are some hoops to jump through to use a VA loan for new construction, but it is most definitely possible. Your builder, your plans, and the property all need to be approved by the VA.
- Purchasing a fixer upper, along with the improvements
- Energy efficient upgrades and improvements to a home
- Purchasing a lot and/or manufactured home – For a manufactured home to qualify for a VA loan it must meet certain requirements. It must be on a permanent foundation, meet square footage requirements, and have a permanent kitchen, bedroom, and bathroom.
VA Home Buying Process
The process of buying a home with a VA loan varies slightly from the standard process for non-VA loans. For the majority of situations it will work something like this:
- Locate a real estate agent – It is always a good idea to work with an agent that has experience working with veterans and the VA loan.
- Find an experienced lender – Find a lender that has worked with VA loans in the past. And then get preapproved. Houses are moving quickly right now and being preapproved for a loan is a prerequisite before most buyers will even look at your offer.
- Certificate of Eligibility – Before the lender can work with you on a VA loan they need to know that you are in fact eligible to obtain a VA loan. Due to this, you need to apply for a Certificate of Eligibility. The process on how to apply depends on what qualifies you for the benefit. You can visit the US Department of Veterans Affairs here to see the details.
- Start your home search – This process is the same as it is for anyone else. When you find a house that you want to make an offer on you need to make sure that your real estate agent includes a VA clause in the Purchase Agreement that allows you to back out of the deal without penalty if the VA does not value the property for the amount of the offer.
- Submit your offer to the sellers with your pre-approval letter
- Under Contract, after your offer is accepted you are given time to perform home inspections. The VA will also send out an appraiser/inspector to ensure the home is worth what you are paying for it and is in move in reading condition. The VA Loan also requires the sellers pay for a termite inspection during this time. You will also be working closely with your lender during this time to finish obtaining your VA loan.
- Closing, this is where you sign allot of paperwork and walk away from the table with the keys to your new home.
While there are closing costs and fees associated with all real estate transactions, the process differs for VA loans. When obtaining a VA loan there are some costs that you will not pay and an extra one that you might. You are responsible for paying a VA Funding Fee since there is no down payment required and no private mortgage insurance being paid. The fee is a very small percentage of the total price of the house. The percentage varies based on if you are making a down payment, your military category, and the type of loan you are obtaining. You can see the breakdown here. The Funding Fee is required to be paid at closing but can be paid in cash or financed. If this is your second home you are purchasing with the VA loan and you still own the first one, your VA funding fee may go up.
There are a few circumstances in which you are waived from paying the funding fee, which includes:
- You are a Veteran that receives compensation due to a service related disability that you have.
- Or, the above applies to you, but you receive retirement or active duty pay instead of disability.
- You are the surviving spouse of a Veteran that dies as a result of their service, or an injury resulting from their service.
Apart from the VA Funding Fee, there are other costs involved in purchasing a house. There are fees associated with the home inspection, appraisal, taxes, credit report fee, and recording fee. The buyer and seller can split the closing costs. An experienced real estate agent can help you determine the best options for splitting the closing costs in each situation.
VA Loan Limits
The VA has no limit on the amount of money that you can finance for your home loan. However, they will only guarantee up to a certain dollar amount. This amount is known as your VA entitlement. Many lenders are going to take this into account when approving you for a loan. You could be required to make a down payment or more if you are interested in purchasing a house over your maximum VA entitlement.
Housing prices vary from county to county and the VA loan limits do as well. To see a list the maximum VA loan limit for your county, see this page. To see detailed examples of how the financing works visit this page.
Purchasing an Investment Property
Although the VA loan has to be used to purchase a primary residence, this does not mean you can not use it invest in real estate. There are mainly two ways veterans use the VA loan to purchase an investment property. The first and most common way is to purchase a home as your primary residence and then rent out the property after you move out. You can then use what is left of your VA entitlement on the purchase of your second home.
The second is to purchase a multi-unit property. You are allowed to purchase up to a four unit property as long as you live in one of the units.
Your dreams of becoming a homeowner are closer than you think with a VA loan. If you have questions about the process that a real estate agent and mortgage lender are unable to answer, make sure to contact your VA Regional Loan Center for answers to all of your VA loan questions.