A great benefit to being associated with the Armed Forces is having access to the VA Loan.
The VA Loan gives families and individuals the chance to qualify for a low-cost mortgage, meaning, you aren’t required to pay as much money upfront, unless you want to!
1. What is the VA Loan?
The VA Loan is a government backed loan that is solely for qualified veterans, active duty military, reservists, and spouses.
Oftentimes, these military members will look like a risk to lenders when qualifying for a regular loan. But thanks to the VA Loan, lenders are offered specific guarantees which protects them despite the risks. Due to those guarantees, military members have a better chance of qualifying for a home and being able to afford it.
2. Benefits of the VA Loan?
The VA Loan is considered to be a non-conventional loan because of the lower credit requirements.
Not only is it beneficial for those with lower credit scores, but they include lower interest rates, no down-payment required at closing, and have more lenient borrowing requirements.
You will also not have to worry about PMI, Private Mortgage Insurance! This is great news for borrowers and will save you a ton of money each month.
Other loans, such as the Conventional Loan are required to have PMI attached to your monthly payment until you have reached 20% equity in your home.
This is a huge win for military members and their families to not have to worry about this extra expense.
3. How do I qualify?
We live in an area of East Tennessee that houses a large population of military members, thanks to the McGhee Tyson Air National Guard Base and other various compounds associated with different branches of the military.
Volunteer Home Mortgage serves our military members well by helping them understand which options are the best fit for them.
Not everyone associated with the military will qualify for the VA Loan, so it’s important to have a loan officer who is trained and understands the requirements of every loan.
You will qualify for the VA loan if you meet at least one of the following criteria:
-Served 181 days of active service during peacetime
-Served 90 consecutive days of active service during wartime
-Served more than 6 years of service with the National Guard or Reserves
-Are the spouse of a service member who lost their life in the line of duty or as the result of a service-connected disability. A rule of thumb is that the spouse cannot have remarried, although there are exceptions.
Certificate of Eligibility
You will need your COE, Certificate of Eligibility which comes in different forms for each category you fall into, i.e., Active Duty, Veteran, Reservist, surviving spouse…etc.
Contact your immediate command office or supervisor to verify which documents you will need based upon your individual circumstances.
Not every lender will issue a VA loan for a condo or manufactured home, so it’s important that you check with your lender first before doing any paperwork if you are interested in that kind of property.
The property you buy must be your primary residence within 60 days of purchase.
And you cannot use a VA loan for a vacation or rental property, but you can use it to buy a one-to-four family home if the eligible member uses it as a primary residence.
Like we mentioned earlier in this blog, the VA loan allows for lower credit scores. Although, this will affect the interest rate you receive, so just be aware of that.
In fact, the VA doesn’t require a certain credit score in order to qualify for it. It is up to the discretion of each lender.
The income-to-debt ratio (DTI) is important for any loan you apply for. The VA loan is no different.
Your lender will examine your DTI and determine whether or not you will be able to afford the amount of your monthly mortgage payment.
They will take into consideration how much you are currently paying towards current debts and if you will have enough left over from your income to essentially…pay all the people you owe and still be able to live your life!
Loan Limit Based on Location
Each zip code has a loan limit that the VA has predetermined. Meaning, that amount is what the VA will back if you default on your loan. Anything more than that amount is your responsibility.
The VA states that the loan limit for a no-down-payment loan is $548,250 in most of the country.
In Blount County, it is $484,350.00. Make sure you are aware of this before searching for homes!
That “zero down” thing sounded so good! Where is the “fee” coming from?
The Funding Fee covers the cost to taxpayers and ranges from 1.25% to 3.3% (2.3% – 3.6% beginning January 1, 2020) of your loan amount. If you don’t have money to put upfront, this fee can typically be built into the entirety of your loan amount.
What determines the cost of the fee?
- Your type of service
- The size of your down payment
- Whether it’s the first-time you’re getting a VA loan
- Whether you’re buying or refinancing
- Surviving spouses, veterans who receive disability and Purple Heart recipients serving in an active-duty capacity are exempted from funding fees.
Most lenders will want to see that you have cash in the bank that you are not using for upfront costs for the purchase of the house.
This will show them that you will be able to afford your payments once the loan closes.
A good amount would be to have two months’ worth of savings stocked up.
Interested in learning more about the VA loan and if you’re qualified? Give us a call and chat with us!