The Truth about VA Loans:
VA Loans are available to active duty military and veterans who are looking to purchase a home.
- Veteran (single or married)
- Veteran and non-Veteran spouse
- Two Veterans (married or unmarried)
- Unmarried surviving spouse of an eligible Veteran (some restrictions apply)
What is a VA Loan?
VA Loans are a federal program, so the government does not actually make direct loans to veterans, instead private lenders finance the loan and the Department of Veterans Affairs offers the guaranty. This protects the lender against total loss should the buyer default and also gives incentive for private lenders to offer better terms for their loans.
What Property Types can be Bought with a VA Loan?
- single family homes
- condos/townhomes (but the entire condo or townhouse complex must receive VA approval before a buyer can obtain a loan for one particular unit)
- manufactured homes (finding a lender willing to fund a manufactured home may be difficult)
- modular homes (in order to qualify the home must be attached to a permanent foundation)
- new construction homes
Unfortunately, vacant land and co-ops are not eligible for VA loans at this point.
What are Some of the Benefits?
- Less restrictive qualifying terms (can be helpful for those with limited cash, higher debt ratio and lower credit scores)
- 100% financing – no down payment required!
- Buyers can add up to $6,000 to their loan to have energy efficient improvements installed
- No private mortgage insurance required
- Competitive interest rates (lower than most conventional loans)
- No pre-payment penalty (allows Borrowers to pay off their loan at any point in time)
- Sellers can pay closing costs, up to 2% discount points, the prepaids, plus an additional 4% seller concessions which can be used to pay off debts and buy downs
One form of “other” credit can be what’s called a seller concession, which is also known as a seller contribution. The VA defines a seller concession as “anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide.”
VA rules say that the value of a seller concession can equal as much as 4% of the selling price. That’s in addition to “normal” discount points and payment of the buyer closing costs. Examples of these are:
- Payment of the buyer’s VA funding fee
- Prepayment of the buyer’s property taxes and insurance
- Gifts, such as appliances
- The payment of extra points to provide permanent interest rate buy downs
- The provision of escrowed funds to provide temporary interest rate buy downs
- The payoff of credit balances or judgments on behalf of the buyer
Are There Other Costs Associated with a VA Loan?
Yes, all veterans using the VA loan must pay a funding fee. This reduces the loan’s cost to taxpayers since most veterans using a VA loan do not put any money down and do not have to purchase mortgage insurance. The funding fee is a percentage of the loan amount, which depends on the type of loan, your military category, whether or not you make a down payment and if you are a first-time or subsequent loan user. There is the option to finance the VA funding fee or pay cash, but it needs to be paid at closing.
The following do not have to pay a VA funding fee:
- Veteran receiving VA compensation for a service-connected disability
- Surviving spouse of a Veteran who died in service or from a service-connected disability
- Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay
Things to Keep in Mind:
- Closing costs: VA appraisal, credit report, state and local taxes, and recording fees may be paid by the purchaser, the seller, or can be split between Buyer and Seller (Remember the Seller can pay for some closing costs, but it can’t exceed 4% of the loan)
- The Buyer is not allowed to pay for the termite report. It is normally paid by the Seller… unless the loan is a refinance.
- Buyers using a VA loan can’t pay for commissions, brokerage fees, or buyer broker fees
While Under Contract with a VA Loan
- Consider putting off changes in your employment
- Avoid taking on new debt (buying a car, furniture, etc.)
- Don’t move money around or change your banks
- Be aware of your credit card limits
- Don’t miss payments on any of your bills!
If you meet the VA eligibility guidelines, and are looking for your next home, contact us today! Our agents have worked with many VA Buyers, and would be happy to help you with your real estate search. Don’t have a lender? No problem! Our team of local financing experts at Atlantic Bay Mortgage Group are ready to guide you through the home buying process and are highly experienced in working with VA borrowers. Contact Cara Hunt, Atlantic Bay Mortgage Group @ (757) 348-2262 for all your financing needs.