Breaking Down VA Home Loans
Plenty of VA loans were funded over the last few years. But there continues to be questions about the program, I figured this may help unpack some of the questions that come up as it pertains to this particular program.
The Department of Veterans Affairs, aka VA, guarantees of portion of home loans for eligible veterans. This guarantee results in lenders being able to fund mortgages with more favorable terms and qualifying than those for conventional or other mortgages. To be eligible a veteran must meet certain requirements that include length of service, duty status and “character of service.” This is generally either four continuous months, the full term or 90 days of active duty.
Essentially, most veterans who have received an honorable discharge, or active military or military reserve, likely have VA eligibility which is good since VA mortgage rates tend to be lower than conforming conventional rates.
VA loans may only be used to purchase a primary residence the veteran must move into within 60-days. LOs and underwriters know that, depending on the price and location of the home, a veteran can purchase a home with no down payment or refinance and pull cash out up to 100% of the appraised value. And VA uses the same maximum county loan limits as those for conforming loans, $647,200 for the all counties, up to $970,800 for “high-cost counties.” To see conforming loan limits in you area, see the post HERE.
Note, that there are VA Home Loans for those who qualify without a VA Home Loan limit that go above this, to find out about qualifying for this or what this would look like please do shoot us a message or give us a call.
VA loans have a funding fee that is added to the loan amount. The amount of the funding fee ranges from 1.4% to 3.6% of the loan amount depending on purpose of loan, if veteran has used their VA eligibility before, and loan to value. Veterans with a disability rating higher than 10%, some veterans, and their surviving spouses of veterans who died in the line of duty are exempt from the funding fee.
The only co-signers allowed with the veteran on a VA mortgage are the veteran’s spouse, or another veteran or active service member. There is an exception to this, which requires a review and approval from the local Dept of Veteran's Affairs office, here in California it's the Phoenix office. This generally requires a down payment from the veteran and the cosigner on purchase loan transactions. All signers on the loan must occupy the home as their primary residence.
Another plus is the fact that income qualifying is easier for a VA loan as generally conforming mortgages as debt-to-income ratios are not used. VA loans qualify with “residual income,” how much money you have left each month after making your new house payment plus other obligations.
To sum things up, since there is no down payment requirement on most VA Home Loans, the veteran has more purchasing power with more cash available to make a higher offer alongside a strong credit profile.
Unlike many loan programs, a lower credit score, bankruptcy or foreclosure does not disqualify borrowers from a VA home loan, and VA guidelines do not state a minimum credit score to qualify.
VA loans have a lower rate than conventional loans in most cases and those with VA loans (or 20% down payments) avoid mortgage insurance premiums, which eases some of the persistent mortgage affordability concerns that exist in the market today.
The VA does have a form of home requirements to ensure the property is a safe investment for the home buyer. VA turn times for underwriting approval generally take 5-7 days and we can still be aggressive with closing our transactions within 17-20 calendar days.
If you'd like to find out more about this program or just have a conversation discussing the benefits of this program connect with us today by clicking HERE.