The Loan is Your Earned Benefit
The clearest benefit of the VA Home Loan is the loan itself. You either have served, currently are serving the country or your spouse has served. This is the final step in your Military process. The step where your hard work has earned you the right to own a piece of the land you or your spouse fought for. You can use your VA Home Loan Benefit to purchase a home anywhere in the United States, and its territories and possessions including Puerto Rico, Guam, Samoa, The Northern Mariana Islands and the Virgin Islands.
Benefits of a VA Loan
No Down Payment Required
The VA Home Loan allows for zero down payment home buying power ranging from $417,000 some counties to as high as $721,050 like the County of Honolulu. Your loan officer can tell you specifically what the 100% financing max is in your area. While conventional financing requires 3% to 20% down and FHA 3.5% down the VA Loan requires no down. You can go as high as $1,500,000 on a VA Home Loan with the necessary down payment.
The VA Home Loan has very flexible underwriting compared to conventional and other types of home loan financing. Credit scores can go as low as 40 points lower than conventional loans, and underwriters can approve the loan based on makes sense financing. VA loans allow for a higher debt to income ratio than other types of home loan financing. In some areas this could mean borrower can qualify for tens of thousands more in a home than conventional financing for example.
No Closing Cost Options Available
There is usually a rate option that will allow for the lender to cover your closing costs besides the VA Funding Fee. (Yes there are closing costs associated with a VA Home Loan) You will have an option to pay points or fractions of a point to buy down your rate, pay zero points at a higher rate, or take a higher rate with rebate pricing that allows the lender to provide lender credits for closing cost credits. Let’s see how this works by looking at a rate chart. Please note this is for example only and is not a current reflection of market rates.
So, all loans have closing costs even VA loans. However, the loan typically has a rate option to allow you to get those closing costs covered equal to the amount of rebate pricing you get in the interest rate chosen on you loan.
No Monthly Mortgage Insurance
In low down payment situations, Conventional, FHA and USDA loans all typically require monthly mortgage insurance premiums. Mortgage Insurance does not help you as a borrower in anyway. It insures the lender against your default and you pay a monthly fee as basically an insurance payment.
For Conventional you can get away from the Monthly Mortgage Insurance by either putting 20% down or coming up with a down payment and second mortgage combination. Here are some facts when comparing the VA Home Loan to Conventional Home Loan Financing:
Who is Eligible for a VA Home Loan?
Current Active Duty with 90 days of continuous Service. All Veterans who have served Post-Vietnam War with 181 days of Continuous Service. Veterans who served in WWII for 90 total days, Post WWII for 18 continuous days, the Korean War for 90 total days, and Post-Vietnam War Veterans that served 181 Continuous Days.
24 Month Rule: Veterans Who Served from 9/8/1980 to 8/1/1990 with a beginning date for officers of 10/17/1981 are eligible at 24 month of continued service or at least 181 days of ordered active duty service.
Gulf War: Veterans who served from 8/2/1990 to present with 24 continuous months of service or at least 90 days of ordered active duty service.
National Guard and Reserve Members with Six year of Service in the Selected Reserve or National Guard with 90 days of Active Service. Completed all required training earning enough points. Must have been have been honorably discharged, or placed on the retired list.
Other Eligible Beneficiaries
Individuals with service as members in certain organizations, such as Public Health Service officers and CDC, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, merchant seaman with World War II service, and others.
The spouse of a Veteran can also apply for home loan eligibility under one of the following conditions: Un-remarried spouse of a Veteran who died while in service or from a service connected disability.
The VA Funding Fee
The VA Funding Fee is an insurance fund that the eligible borrower pays in their loan to ensure the prosperity and longevity of the loan program. It is a fee based on type of military service and first or subsequent use. It is charged both on purchase and refinance loans.
The amount of the funding fee depends on the following:
• The type of transaction (refinance versus purchase)
• Down payment
• Whether this is the first use or subsequent use of the borrower’s VA loan benefit
• Whether you are/were regular military or Reserve or National Guard
• Veterans and active military buyers receiving compensation for a service-connected disability and deemed more than 10% disabled by the VA are exempt from paying the Funding Fee.
VA Closing Costs
What Fees are allowed to be paid by the borrower?
• 1% flat charge by the lender, plus reasonable discount points to lower the rate.
• Appraisal and compliance inspections – including pest inspections, water well, septic, etc. • Recording Fees
• Credit Report Fee • Prepaid Items – Includes pro-rations for property taxes, insurance, and initial escrow deposits as required by lender
• Insurance – The first years hazard insurance must be paid at closing, plus flood insurance if required.
• VA Flood Certification- A third party verification to determine if a property is located within a special flood hazard area
• Title Examination and Insurance
• VA Funding Fee – Unless exempt each veteran must pay a funding fee to VA.
What Fees are not allowed to be paid by the borrower?
• Administrative fees
• Loan closing or settlement fees
• Document preparation fees
• Document preparation or conveyance fees
• Attorney’s fees other than for title work
• Rate lock-in fees
• Rate lock-in fees
• Escrow fees or charges
• Notary fees
• Underwriting fees
• Loan application or processing fees
• Brokers fees
• Tax service fees
VA Mortgage Loans can be refinanced without the hassle of a conventional loan
VA mortgage loans have built in features allowing a loan to be refinanced to a lower interest rate without all of the criteria normally associated with a conventional loan. This is called an Interest Rate Reduction Loan; the veteran can secure a lower interest rate without any credit checks, appraisal, and income or asset verification and can roll the costs of the transaction into the loan so there are no out of pocket costs.