The American Dream of owning a home is part of our historic fabric. For our veterans and active military, the Veterans Affairs home loan (VA loan) is a great way for our veterans and those still serving to participate in the American Dream.
Veterans, active-duty service personnel, select Reservists, and National Guard members are among those who can qualify for a VA loan if they meet the specific requirements. There are several benefits to VA loans.
Here are five you should know about.
1. No down payment
Saving money for a down payment can be a big obstacle to overcome when you start thinking about buying a home. Down payments can be as much as 20% of the purchase price. VA loans allow the buyer to come in with no money down. That does not mean there aren’t costs. There are home inspections, appraisals, and some closing costs that a VA buyer should be prepared to pay. Once you decide to buy a home talk with your REALTOR® and your VA lender to understand the costs you will need to cover. Keep in mind, even moving costs money.
2. No mortgage insurance
Most conventional loans with less than 20% down require private mortgage insurance (PMI). This can be expensive. Even FHA loans have their own form of PMI. Typically PMI runs around $200.00 a month in addition to the loan costs. The VA loan waives this insurance requirement saving our veterans a great deal of money every month.
3. Lenient loan requirements
During the last recession, qualifying for any kind of loan became more difficult. Now you have to be able to do more than fog a mirror. In spite of the tightened loan qualifications, VA loans still provide many advantages to our veterans. The required credit scores for a VA loan can be around 620 while a regular conventional loan credit score is closer to 650.
The required debt-to-income ratio is more flexible for a VA loan than any other type of loan. In other words, you can have more debt and still get a loan. (A debt-to-income ratio (DTI) is what percentage of your income goes toward debt each month. It takes into account debt and it also includes rent and other reoccurring payments, like child support and alimony. Lenders use your DTI ratio to determine how much money you can borrow.)
4. Lower closing costs
Veterans are allowed to pay for certain closing costs, but not as many as other types of loans. The closing costs they can pay are appraisal, credit report, origination fees (up to 1%), recording fee, survey, and title insurance. Not all lenders are created equal. Some charge all of these fees and some will pay a good portion of these fees. Ask your trusted REALTOR® for a lender that covers some of these fees for you. For instance, I work with a lender that covers the appraisal and the origination fees.
You can also lower your out-of-pocket costs by asking the seller for a portion of your closing costs. The best way to do this is to raise your offer by the amount you need to cover your closing costs. Your lender can let your REALTOR® know the amount you need. An example of this: you find a house that is listed for $280,000 that you want. Assuming you can get it for the list price, raise your offer to $289,000 and ask for 3% back for closing costs from the seller. The seller gets their asking price and you get your closing costs covered.
Some agents believe that the 3% should be taken out of a full-price offer. Most sellers don’t believe that they should have to take less for their home in order to work with a veteran, so unless the house is overpriced, this is a very poor strategy.
5. Extra assistance with appraisals
Most REALTORS® work very hard not only to get you the house you want but to be sure you are not overpaying for the house. In spite of this, there are times that an appraisal will come back with a lower value than your offer. You are protected by the VA loan offer and you don’t have to pay more than the appraised value.
There are several reasons why an appraisal might come in low. The square footage is wrong, the listing agent went higher than what the market can bare, or in today’s world the market is rising so fast that the appraiser is not aware of some of the most recent sales (an appraisal is based on closed sales, not pending or active sales). For instance, I am working on a property that the closed homes that show the current home value are closing just one week before my buyer's property is closing. This causes the appraisal to be lower than the current market price.
The VA loan allows you and the lender to ask the appraiser to adjust the value before making a final determination. We call this “Tidewater”. The appraiser notifies the lender that the value is likely to come in low and the buyer and the REALTORS® have 48 hours to supply additional information to the lender that the appraiser didn’t know about and didn’t include in the home value. Usually, the REALTORS® have done their homework and can easily respond to the request. Sometimes the appraiser will not budge. You have to keep in mind that an appraisal is just one person's opinion on one day, but that opinion can be a game-changer.
There are many other benefits that a VA loan offers. The loans are guaranteed by the government, lower interest rates, BAH (Basic Allowance Housing) can count as income, and more.
I am pleased to be able to work with our veterans and active military to help them realize the American Dream and I thank each of you for your service.
Right now (April 2021) homes are selling for more than the asking price with the median price of a home at $204,500 which is actually 5% lower than it was last month. We still have a lack of inventory so finding a home is not only difficult but makes this a seller's market. Homes are selling for more than the list price.
