Consider this: a mortgage program offers certain Americans a home loan with zero down payment and no private mortgage insurance (PMI) requirement. In addition, closing costs are limited and if the home is newly constructed, the builder must supply the buyer with a one-year home warranty.
Despite the obvious perks of the program, only 10.5 percent of the nation’s nearly 22 million veterans take advantage of this Veterans Administration benefit. When asked why, 33 percent of those who responded said they were completely unaware of the benefit, another group said they went with an FHA loan because they thought it would be easier to qualify.
Maybe the VA could be doing a better job informing (especially young) members of the military, veterans and surviving unmarried spouses about the VA loan program. So, today we’ll take a look at the program and learn why it may just be the best loan product on the market.
Remember, we aren’t VA, mortgage or financial experts, so consult with the appropriate professional should you have any questions regarding the VA home loan program and its benefits. A great source of information is your local lender.
The basics of the VA home loan program
Like the Federal Housing Administration (FHA) program, the U.S. Department of Veterans Affairs doesn’t actually make loans, but offers lenders a guaranty, if the veteran defaults on the loan. Should this happen, the VA will pay from 40 to 50 percent of the balance of the loan (the percentage depends on the size of the loan).
As you can imagine, this promise enables lenders to relax when faced with a borrower who may have little or less-than-perfect credit and lower-than-average income.
So, what can you do with a VA home loan?
- Buy a home (a condo, too, if it’s in a VA-approved community)
- Build a home
- Simultaneously buy and rehab a home
- Buy a lot and/or manufactured home
Is a VA loan harder to qualify for than an FHA loan?
The short answer is not really.
To qualify, you’ll need to say “yes” to at least one of the following questions:
- Were you on active duty for at least 90 consecutive days during wartime?
- Have you served at least 181 days of active duty during peacetime?
- Have you served in the National Guard or Reserves for more than 6 years?
- Are you a widower or widow of a military service member who died either in the line of duty or as the result of an active-duty service-related injury or disability?
The biggest advantages of the VA loan
As previously mentioned, the biggest advantage of the VA loan is that you won’t have to put any money down … and you won’t have to make monthly PMI payments. A conventional or FHA-backed loan for which a borrower puts down less than 20 percent requires the purchase of mortgage insurance (the Mortgage Insurance Premium in the FHA loan and private mortgage insurance, or PMI, with a conventional loan).
PMI covers the lender in the event the borrower defaults on the loan. PMI can add quite a chunk to your monthly mortgage payment. For instance, FHA’s annual mortgage insurance premium for a 30-year fixed-rate mortgage with 3.5 percent down payment is 0.85 percent annually. On a $200,000 mortgage, that comes out to $1700 per year or $141 per month on top of your Principal, Interest, Taxes, and Insurance.
The VA loan program requires NO monthly mortgage insurance premiums, closing costs are limited and there is no prepayment penalty. Removing PMI from the equation saves the qualified veteran a significant amount each month over the same FHA loan … which would still require a 3.5% down payment.
The VA home loan process
Yes, there are a few more hoops to jump through when dealing with the VA. Eligibility requirements, however, are much like those for FHA and conventional loans:
- “Suitable credit.” The VA doesn’t really explain what they mean by “suitable.”
- You should be able to prove that you have the income to cover all your bills and the house payment.
- You must intend to live in the home (you can’t rent it out). If you are reassigned you may rent the home out.
- You must present a VA Certificate of Eligibility (COE). Most VA-approved lenders can access your COE online or you can access your COE on the eBenefits page of the VA website.
The biggest hurdle for vets is that these loans are provided by lenders and they all have their own guidelines. Shop around until you find one that you feel you can work with. One of the best providers in Colorado Springs is Fairway Independent Mortgage Company.
Check out this video on the VA Home loan program …
About the author: The above post “Your Guide to The VA Loan” was written by Kevin Guerrero of Keller Williams Clients’ Choice Realty. To find out more about Kevin and Keller Williams check out the ABOUT US page.
For more on the VA home loan program click HERE.
You can also download a comprehensive Buyers Guide HERE.
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