VA loans are mortgage loans tailored specifically for active-duty service members and veterans of our nation’s armed forces. In order to be eligible, you must have served a designated amount of time in the military, or in some cases, surviving spouses of veterans are eligible as well.
It is important to understand the difference between eligibility and qualification. A civilian is not eligible for a VA mortgage loan. A veteran or active-duty service member are eligible for the program based on their military service. They will still have to meet the credit and income requirements of the VA Loan Program to qualify for the purchase of a home.
What are the benefits that come with VA loans?
The good thing about a VA loan, is that in many cases the income and credit requirements are less strict than other home loan programs. For example, here are some attractive items offered that help a potential buyer qualify for the VA home loan easier than other loan programs, as long as they already hit the service time threshold:
- Lower required credit scores than on typical conventional loans
- Higher debt to income ratios are accepted than on typical conventional loans
- No down payment required
- No private mortgage insurance, which can mean qualifying for more versus other loan programs
What do you need to know about VA home loans?
Now, in order to offer a no down payment loan, the VA does collect a “funding fee.” The funding fee helps sustain the program into the future so the program will continue to be available to other military members and veterans. The funding fee is typically included in your initial loan amount so it is not something the buyer would have to pay out of pocket.
At this point, the only other items that the buyer could be on the hook for would be closing costs and prepaid items. As long as your home loan offer is structured correctly, the seller can pay those costs for you. It is important to know that all mortgage loan programs have closing costs and prepaid items, so if we want to limit money out of the buyer’s pocket, then we need to negotiate for the seller to pay for them.
The part of the transaction that is a little bit more strict than conventional loans is that the VA requires any home that you purchase to be in “move-in ready” condition. The VA loan program is not a program designed for someone to buy a “fixer-upper.” As part of the appraisal process to get the value of a property that a buyer is looking to purchase, the appraiser will also check to make sure all items are functioning properly, there is no damage to the home, and all building codes are being met.
While this may be viewed as a hang-up, a knowledgeable realtor should be able to show you homes that generally meet the VA guidelines upfront. If VA-required repairs are discovered through the appraisal process, buyers and sellers do have the opportunity to address these deficiencies in order to successfully complete the transaction.
This is just a brief summary of some of the highlights, but the main draw of this program is to help our active-duty military personnel and veterans become homeowners with as little money out of pocket as possible. For more details, reach out to us!