The housing market has become difficult to maneuver in recent years, thanks to some drastic ups and downs. Because of a recent recession, particularly in the housing industry, lenders have become leery of less than perfect borrowers, making it difficult to obtain the financing needed to buy a home. This situation often becomes even more difficult for military service members who aren’t usually in one place long enough to establish a solid credit foundation. Thankfully, the VA loan program makes it possible for veterans and active duty servicemembers to obtain the financing needed to buy their home, and even has some provisions that make it especially attractive compared to standard loans.
VA loans are typically easier to apply for and do not require a down payment. Private lenders are still responsible for providing the funding, but because the VA loan program is government backed, lenders encounter far less risk, making it easier for them to approve the application as long as the veteran qualifies for the loan. These men and women also receive a lower interest rate, making it a more affordable option.
If you think you may be a solid candidate for a VA loan, here are some things you may want to know before you begin the application process:
Almost all branches of the military are eligible to apply for a VA loan. This includes veterans, reservists, National Guard members and spouses of servicemembers who died while actively serving, or due to a disability or injury related to service. If you are an active duty member, you will typically qualify after 6 months of service. Reservist must wait a full 6 years before applying for the loan. If they are called to serve before the completion of the 6-year wait, they are generally eligible after 181 days of active service.
National Guard and reservists, as well as active duty servicemen and women, are usually eligible after 90 days of service during periods of war. Before applying, you must provide a certificate of eligibility. This form can be submitted online.
Why Choose A VA Loan
Civilians generally don’t have the luxury of obtaining a loan without putting down a down payment. With a VA loan, however, this is not the case. Thanks to the construction of the loan program, veterans don’t need to put down a down payment in order to buy their home. As an added benefit, they don’t need to worry about private mortgage insurance (PMI). Because the loans are government backed, there is no need for it. For a traditional loan, any down payment made that constitutes less than 20% of the cost of the loan requires PMI that gets tacked onto the monthly payment. The results are substantial savings for the borrower — in some cases, as much as $200 dollars a month less on their payment.
Some Fees Apply
While getting a VA loan is an easier, lower cost option for those who qualify, there is still a one-time funding fee that can differ in size depending on the amount you can put down and the type of veteran you are.
If this is your first time using a zero-down option, you are required to pay a fee of 2.15% of your loan. However, if you choose to put down 10 percent, the amount is reduced to 1.25%. As another consideration, reservists and National Guard members generally pay a fourth of a percent more than active members.
If this is your second time using the program with no money down, you are required to pay 3.3% of the complete loan amount. However, if you are a disability compensation recipient, the fee is typically waived.
The VA does not require a base credit score to qualify for the loan, but the lender may have a set of requirements internally that will still need to be met. Typically, lenders want a score of 620 or higher. Some lenders may work with lower credit scores, but your interest rate may increase as a result.
As a borrower, you need to show sufficient income to repay your loan, and factors such as the amount of debt you have will be considered in the final decision. Too much debt may hinder your ability to get a loan.
Veterans may use their home loan benefits a year to 2 years after bankruptcy or foreclosure. Much of what determines your individual factors is your recent credit history and current standings. You cannot use this loan to refinance or purchase investment properties or vacation homes. Typical limits of VA loans vary, but average ranges consist of a $417,000 cap in most areas.
VA loans also offer assistance to struggling borrowers. The VA can often negotiate terms with the lender on behalf of the borrower. Thanks to the VA’s staff of counselors, borrowers have the capability to renegotiate, modify or seek other alternatives to foreclosure. Contact your representative for details.