As we celebrate Veterans Day in November, I would be remiss to not mention one of the most misunderstood and overlooked veteran’s benefit, the VA home loan.
- Of the more than 20 million U.S. military veterans, only 10.5 percent utilize their home loan benefits.
- When those who aren’t using this benefit were asked why, more than 33 percent responded that they didn’t know about the VA loan guarantee (2010 National Survey of Veterans). Another large group claims that FHA loans are easier to obtain.
- The largest groups of respondents to the National Survey of Veterans who were unaware of the program’s existence were older veterans and unmarried surviving spouses.
While not at all flag-waving worthy, these statistics can, and should change. It starts with the real estate/mortgage industry taking responsibility for educating veterans and their spouses about the VA home loan program and its benefits.
The loan, in a nutshell
The U.S. Department of Veterans Affairs offers a home loan guaranty, promising the veteran’s lender that the veteran will repay the loan.
Now this guaranty doesn’t cover the entire loan amount. Should the veteran default on the loan, the VA guaranty covers from 40 to 50 percent, depending on the size of the loan.
VA home loans can be used to:
- Buy a single-family home or a condominium unit in a VA-approved project.
- Build a home.
- Simultaneously purchase and improve a home.
- Improve a home’s energy efficiency.
- Buy a manufactured home and/or lot.
VA loan advantages
Today there are only two easy ways to finance a home with no down payment: through the United States Department of Agriculture Rural Development Program and through the Veterans Administration.
Thinking of a FHA-backed or conventional loan? If you put down less than 20 percent, you’ll be subjected to the required monthly payment for MIP (mortgage insurance premium) for the former and PMI (private mortgage insurance) for the latter.
This insurance, which benefits the lender should the borrower default on the loan, can add quite a chunk to your monthly mortgage payment.
The amount you’ll be required to pay depends on how much you borrow and the loan-to-value ratio. You’ll find an FHA MIP rate chart at LendingTree.com.
The VA loan, on the other hand, has no monthly mortgage insurance premiums, there are limitations on how much you’ll spend on closing costs, and the loan has no prepayment penalty.
If you choose a newly constructed home, the builder is required to purchase a 1-year home warranty for you.
How to get one of these bad boys
As with anything that comes from the government, eligibility can become complicated (wait until you see the appraisal requirements!). You are eligible for a VA-backed loan if:
- You have what the VA considers “suitable credit.”
- You have sufficient income to pay your bills and your mortgage payment.
- You plan on occupying the home.
- You have a valid Certificate of Eligibility (COE).
The latter is easy to obtain. In fact, a VA-savvy lender should be able to get your COE through the online ACE system. Learn how to choose the right lender for your VA loan at Military.com.
If for some reason your records can’t be accessed, you’ll need to apply to the VA for your certificate. We can help you with that.
Remember, you’ll be applying for this mortgage through traditional lender and each has its own guidelines so you’ll need to meet the lender’s requirements as well.
Yes, your credit score and overall financial picture will be examined, but the lending process for veterans isn’t quite as stringent as it is for civilians.