Should I Take Advantage Of VA Home Loans When Buying A Home?
Veteran Affair home loans, commonly referred to as VA home loans, have always been a popular type of financing for military home buyers who may not have pristine credit scores or a ton of money to put towards closing costs and down payment. VA loans can be a fantastic mortgage product for some, while for others they may not actually be the best fit.
It’s critical that as you’re beginning the process of buying a home that you evaluate what type of mortgage is the best fit for you. This can be done by consulting with an experienced mortgage professional. If you’re not sure where to find an experienced mortgage professional, you may consider asking a successful real estate professional who’ll have some recommendations.
Below you’ll find out what VA home loans are, how to determine if you’re eligible for VA home loans, what the PROs are to VA home loans, and finally, what the CONs are to VA loans. Before deciding to take advantage of a VA loan, make sure you understand them in detail and the information below should be a huge help.
What Are VA Home Loans?
VA loans are a mortgage product that are designed to help Veterans, service members, and surviving spouses become homeowners. Part of the US Department of Veteran Affairs mission to those who’re eligible for VA home loans reads,
“We provide a home loan guaranty benefit and other housing-related programs to help you buy, build, repair, retain, or adapt a home for your own personal occupancy.”
VA home loans are available through private lenders such as banks and mortgage companies. The VA does guarantee a portion of the loan which enables a lender to provide more favorable terms.
How To Determine If You Qualify For VA Home Loans
There is a common misconception that exists with VA loans. This misconception is that only Veterans are eligible to take advantage of this mortgage product.
In order to determine if you qualify for VA home loans, you first must be able to prove that you have acceptable credit, sufficient income, and a valid Certificate of Eligibility, commonly referred to as a COE. The home you’re planning on purchasing with the VA loan must also be used as a primary residence and cannot be purchased as an investment property or for other uses.
The best way to determine if you’re eligible for a VA loan is to discuss in detail with a mortgage professional who has experience working with VA loans. There are however some general guidelines that can help you determine if you may qualify for a VA home loan, which are listed below.
By meeting one or more of the following criteria, in all likelihood, you’ll be able to qualify for a VA loan.
- You’ve served for more than 90 consecutive days of active service during wartime
- You’ve served for more than 181 days of active service during peacetime
- You have more than 6 years of service in the National Guard or Reserves
- You’re the spouse of a service member who has died in the line of duty or as a result of a service related disability
It’s always recommended that before you start shopping for homes that you discuss all your options with a mortgage professional. If you’re considering a VA loan, it becomes even more important to talk with a lender before looking at homes.
There are way more benefits of getting pre-approved for a mortgage before looking at homes than there are drawbacks!
What Are The PROs Of VA Home Loans?
VA home loans come with many benefits and potentially is an ideal fit for your home purchase. Below are some of the greatest benefits of utilizing a VA loan to purchase a home.
1.) No Down Payment Options
One of the most popular ways to buy a home with no money or very little is by taking advantage of the VA home loan products. Arguably the biggest benefit to VA loans are the no money down options they offer.
Other type of mortgage products require a buyer to supply a percentage of a homes purchase price to be used towards a down payment. For example, FHA loans require a buyer to put a minimum of 3.5% down.
Many home buyers don’t know how to save for a down payment on a home. VA home loans allow a buyer the ability of not having to come up with a down payment. This can be a substantial savings for a buyer, especially those who don’t have a lot of money saved up.
If you’re considering a VA loan, there are some advantages to putting some money down on a home, if able. Putting money down on a home brings the loan-to-value down which reduces the monthly payment amounts and also reduces the amount of interest paid over the life of a loan. Putting money down also increases the amount of equity you have in your home.
Bottom line, make sure that you understand the PROs and CONs of small down payment home loans beforehand.
2.) Eliminate Mortgage Insurance
Another fantastic benefit of VA home loans is that there’s no mortgage insurance that’s required. Mortgage insurance is an amount of money that is either paid upfront or monthly by a homeowner that protects a lender in the event of a buyer defaulting on their mortgage.
In some circumstances on an FHA loan, mortgage insurance may be required for the life of the loan. On conventional loan products it’s required until the homeowner reaches a certain loan-to-value percentage.
Eliminating private mortgage insurance is always a huge relief for homeowners that’re able. If you’re taking advantage of a VA loan, you’ll never have to worry about mortgage insurance.
3.) No Prepayment Penalties
One of the frequently asked questions about mortgages is whether or not there are prepayment penalties or not. Some types of mortgages will penalize the borrower if they attempt to pay off their mortgage early. Yes this sounds crazy but it’s true. Lenders want to continue to collect on the interest from the mortgage and if it’s paid off early, there is not an opportunity to do so.
VA home loans have no prepayment penalties. This is a huge advantage for home buyers who’re going to be taking advantage of a VA loan.
4.) Flexible Mortgage Guidelines
Every lender and mortgage product has different guidelines. These guidelines are sometimes referred to as mortgage overlays. An attractive feature of VA home loans is that the mortgage overlays tend to be more flexible than other mortgage products, such as FHA and Conventional loans.
One of the biggest differences between mortgage overlays for VA home loans is the debt to income ratio. The VA allows a buyer to have a debt to income ratio up to 41% or less.
The VA is also typically more understanding of previous bankruptcies and foreclosures. Some mortgage products will require a buyer to wait up to 7 years after a bankruptcy, while the VA will allow some buyers to obtain a mortgage just a couple years after a bankruptcy or foreclosure.
5.) Extensive Inspection Process
It’s always recommended to perform an independent home inspection when buying a home, regardless if you’re thinking about obtaining a VA loan or not. There are many reasons why having a home inspection is a good idea. The VA does not require an independent home inspection, but they do have other requirements that must be met prior to funding.
A term that you may hear when learning about VA home loans is MPRs, which stands for minimum property requirements. When a VA home appraisal is conducted the appraiser must inspect several items within the subject property.
The VA appraiser will be inspecting a homes heating and cooling system, roof, ventilation systems, hot water production capabilities, and a handful of other things. A VA appraisal will generally be more strict than an FHA or Conventional appraisal, which is a benefit to buyers obtaining a VA loan.
What Are The CONs Of VA Home Loans?
As you can see, there are several excellent benefits to VA home loans. It’s important to understand though that a VA loan can come with some drawbacks as well. Below are some of the CONs of VA home loans to consider.
1.) Potential Loss Of Appeal To Home Sellers
One of the biggest negatives to VA home loans is the potential loss of appeal to home sellers. Since VA home loans are subject to a strict appraisal, this can sometimes make a home seller uneasy, especially if they’ve never sold to a VA home buyer in the past. VA home loans generally result in more bank appraisal issues than FHA or Conventional loans so some sellers may avoid them at all costs.
Another reason why a VA home buyer maybe less appealing to a home seller than an FHA or Conventional buyer is due to the fact that many VA home loans will be no money down. Due to the fact that a buyer may not have to put any money down on a home, this can be a red flag for a home seller that the buyer doesn’t have a lot of money available which could jeopardize their mortgage approval.
It’s not uncommon for buyers who’re obtaining a VA loan and buying a home in a competitive market to lose out in multiple offer situations. As one of the top Rochester NY listing agents, I often see that in multiple offer situations buyers who put more money down and buyers who obtain conventional or FHA financing win over buyers who’re obtaining a VA home loan.
2.) VA Funding Fee
Another negative of VA home loans is the VA funding fee that’s required. The VA funding fee is a one-time fee paid directly to the Department of Veteran Affairs for any home purchase or refinance. The purpose of the VA funding fee is to offset the cost should a loan go into default and also ensures that VA loans are available for future buyers.
The VA funding fee can be paid upfront in full or can be factored into the borrowers monthly mortgage payment. Before deciding to obtain a VA loan, make sure you calculate how much the VA funding fee is going to be. There are several VA funding fee calculators available online to help you determine exactly how much you should expect to pay.
VA home loans are a fantastic option for some home buyers who’re eligible. As with anything, there are going to be PROs and CONs and it’s vital to evaluate both before making a decision.
In most cases, VA home loans are the best option for Military and veteran home buyers but it’s possible, in some cases, they’re not. The PROs and CONs listed above should help you determine if a VA loan is the right fit for you. Again, if you’re not sure, reach out to a local VA home loan expert for their assistance and guidance.
Other Top Resources For Military & Veteran Home Buyers
- 6 Common VA Mortgage Mistakes via Teresa Cowart
- Top Reasons To Hire A Buyers Agent When Buying A House
- Qualifying For A VA Mortgage [Infographic] via Anita Clark
- Buying Your Home With A VA Loan via Debbie Drummond
Are you a Military or Veteran home buyer in Rochester NY? If so, the PROs and CONs of VA home loans above should help you decide whether a VA loan is the right product for you or not. If you don’t have a real estate agent yet, contact me and I’d love to discuss the home buying process with you. I’ve helped dozens of Rochester NY Military & Veteran home buyers achieve the dream of home ownership!
About the authors: The above article “What Are The PROs & CONs Of VA Home Loans?” was written by Kyle Hiscock of the Hiscock Sold Team at RE/MAX Realty Group. With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise.
We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.
© 2017, Kyle Hiscock. All rights reserved.