If you have had some form of military service in your history, you may qualify for one of the best home mortgage programs out there, the VA Insured loan. A glance at a few of the features of this kind of mortgage makes its advantages clear:
- zero down payment
- somewhat more flexible qualifying
- no mortgage insurance
- assistance should you have difficulty making payments
Let's take a look at some of the characteristics of this kind of mortgage to see if it could be right for you.
Most members of the military, veterans, reservists and National Guard members are eligible to apply for a VA loan. Spouses of military members who died while on active duty or as a result of a service-connected disability may also apply.
Active-duty members generally qualify after about six months of service. Reservists and members of the National Guard must wait six years to apply, but if they are called to active duty before that, they gain eligibility after 181 days of service.
Reservists, members of the National Guard and active-duty members generally are eligible after 90 days of service during war periods.
Potential borrowers must obtain a certificate of eligibility before applying for a loan. The form can be submitted online.
The VA does not make loans, it guarantees them. The loan is made by a private lender: a bank or mortgage company, but it is insured by the VA, reducing the lender's risk. This is similar to the role the FHA takes in guaranteeing mortgages with one big difference: with the VA there is no ongoing mortgage insurance to pay.
This is big. On a $200,000 mortgage, the monthly mortgage insurance payment on an FHA loan is about $200! So a VA borrower on the same size mortgage could qualify for almost $40,000 more home for the same payment!
While VA loans are available with no down payment, there are other up front costs that must be paid, notably the VA funding fee. On a first time VA loan with no down payment, the fee is about 2.15% of the loan amount. If the veteran puts 10% down on the purchase the funding fee is reduced to 1.25%. Funding fees are slightly higher for reservists and National Guard members. And for veterans using their VA loan benefits for the second time, the fee is 3.3%. If the veteran is receiving disability compensation, the fee is waived
The good news about the funding fee and all buyer closing costs associated with a VA loan is that a seller can pay them. So in many cases a veteran can get into a home with very little money out of pocket.
Lenders usually view the VA loan as a benefits program and therefore are a little more flexible on qualifying than conventional lenders. The key words here are 'a little.' You still have to show sufficient income to make the payments and you can't be buried in debt; but many lenders take a softer stand on the limits with a VA loan.
Generally, lenders are looking for a credit score of about 620 for a VA loan. Some may take a borrower with a lower credit score but will offset that with a slightly higher interest rate.
Bear in mind that VA loans may only be used to finance a primary residence, not a vacation home or investment property. And there are limits to the amount that can be borrowed. In The Triad today, the limit is $417,000.
One little known benefit of the VA mortgage program is the help that is available to borrowers who encounter difficulties repaying the mortgage. If this happens, the VA maintains a dedicated staff nationwide to help veterans in these difficult situations. They can step in and negotiate with the lender to get relief. Every year they help thousands of veterans avoid foreclosure, restructure their loans, reduce payments and so on. It is a layer of assistance other borrowers generally don't have.
Like all mortgage programs, the VA mortgage benefit is complex. If you are a veteran thinking about purchasing a home, your first step should be to talk with an expert. Every situation is different and every borrower is unique, so having a knowledgeable professional on your side is essential. This is especially true if you have already used your VA benefit and want to use it again. At GreatNest and The Vincent Group, we've helped many veterans on the road to home ownership. We'd be honored to help you!