VA Home Loans: Your Path to Homeownership
VerifyInvestor.com
Owning your own home is not only the American dream, it’s a great investment. But with soaring housing costs and ever-increasing interest rates, buying a home can be quite challenging for most people.
For veterans, servicemen, and their survivors, the path to homeownership is made a bit easier due to Veteran Administration (“VA”) home loans.
VA home loans offer better terms than most traditional mortgage loans and certain benefits — like no down payment — that are unavailable to civilians.
There are specific eligibility requirements that must be met, of course, but for most veterans and their families, VA home loans are the entry point and path to homeownership.
About VA Home Loans
VA home loans are government-backed home loans. What this means is that, for veterans, servicemen, and their eligible surviving spouses, the U.S. Department of Veterans Affairs guarantees a private money mortgage loan (up to a certain amount of the total loan). For private lenders making home loans to veterans, this guarantee ensures that they will get some money back even if the homeowner defaults on the loan.
This home loan benefit for veterans and servicemen grew out of the Servicemen's Readjustment Act of 1944 (also known as the “GI Bill” or “GI Bill of Rights”). The purpose of the GI Bill of Rights was to assist veterans to readjust to civilian life after returning from World War II.
VA home loans are available to veterans and active military who meet certain qualifications.
But before we dive into the benefits and different types of VA home loans, it is important to know what VA home loans are not intended to be used for.
To foster the purpose of the GI Bill, VA home loans are designed to help veterans purchase a single-family home or condominium that they will be living in.
VA home loans are not intended to be used solely for investment purposes. Thus, VA home loans cannot be used primarily to purchase investment properties, vacation homes, rental properties, or other income-producing properties.
As with other exemptions provided by law, like those created by the JOBS Act, and Rule 506(c), it is critical to stay within the law’s specifications.
Even with the no-investment home limitation, however, VA home loans provide several benefits for veterans seeking to purchase a home.
Types of VA Home Loans
There are several different types of VA home loans.
These include (may not be limited to):
purchase money loans
cash-out refinance loans
interest rate reduction refinance loans
Native American direct loans
adaptive housing loans for disabled veterans
Each different type of loan program offers a variety of loan benefits for veterans that can help you save money and buy, renovate, adapt, or refinance your home.
The Benefits of a VA Home Loan
Perhaps the most attractive aspect of VA home loans is that, unlike conventional home loans, they do not require a down payment.
This benefit is enormous. For example, if you live in California, the average amount required for a down payment on a house is between 15% to 20% of the purchase price. Given that most house prices in California can easily reach $1,500,000 or more, not having to put down a down payment can save you anywhere from $225,000 to $300,000 on average. That’s an unbeatable benefit.
Even with a more traditional and far lower 5% down payment rate often used throughout the rest of the country, a house that costs $300,000 will require a down payment of $15,000.00. So having a $0 percent down payment is a fantastic benefit.
One cautionary point here: while the VA does not require a downpayment on a VA home loan, some private lenders may require a down payment.
Another major benefit of VA home loans is that borrowers are not required to carry mortgage insurance. This can save veterans thousands of dollars.
Among some of the other benefits of a VA home loan are:
competitive interest rates
foreclosure assistance
no prepayment penalties for paying off the mortgage early, and
reduced closing costs.
Buying (or refinancing) a home with a VA-backed home loan offers veterans and active military alike a path to homeownership. But, as with most things, there is more to know.
Chief among these important factors to understand is that you must qualify for a VA home loan.
So let’s take a look next at eligibility requirements.
VA Home Loan Qualifications
As noted above, there are different types of VA home loans, and each loan may have different requirements. In addition, to qualify for a home loan, you must provide your lender with a Certificate of Eligibility.
The first step, then, is to determine whether you are eligible for a VA home loan.
To be eligible to apply for a VA home loan, a serviceman, veteran, or spouse must be able to establish that he or she:
has at least 90 days of active-duty service,
served for at least six years of service in the Reserves or National Guard,
served at least 181 days of active-duty service during peacetime,
has 90 days of cumulative service under Title 10, or 90 days of service (with at least 30 of those being consecutive service) under Title 32,
is the spouse of a military service member who died in the line of duty, or due to a service-related disability.
Bear in mind that not only do you need to be eligible for the VA home loan, but, as noted above, the loan itself must be for an eligible purpose. Thus, to fully qualify, you must intend to occupy the premises as your home and the loan amount cannot exceed the appraisal value of the property.
Tips for Veterans Looking to Purchase a Home
Purchasing a home is a complicated process for anyone. However, when the government is involved, things can get even trickier due to government rules and regulations.
So here are a few tips for veterans looking to purchase a home with the help of a VA home loan.
Tip Number 1: Get the Right Lender and the Right Real Estate Agent.
Not all real estate agents are familiar with the demands of military life or the rules surrounding VA loans. Thus, you must find a real estate agent who has experience working with VA borrowers.
Throughout the process, there will be specific paperwork and certain requirements that must be met, and an agent experienced in this area can do much to help you avoid unnecessary delays or homes that don’t meet the minimum standards.
In the same way that you need the right real estate agent, you also will need the right lender. VA-backed home loans are made by private lenders, like banks, mortgage companies or savings and loan associations.
Tip Number 2: Get a Copy of Your Credit Report and Review it.
The first thing a lender will do before deciding whether or not to make a loan is a credit check of the potential borrower. For veterans looking for VA home loans, it is essential to be aware that your credit history will be an important focus of the home-buying process.
Your credit doesn’t have to be perfect to get a loan, but having a high credit score will do much to help you get approved for the home loan that you want.
Before you apply for a loan, one of the things you will want to do is to get a free copy of your credit report and review it for any errors.
Tip Number 3: Don’t Forget About Closing Costs.
Just because you won’t need to come up with a down payment if you get a VA home loan, that does not mean that there are no costs associated with buying a home. Of course, there are.
There will be additional costs such as closing costs, property taxes, and insurance to be paid. So make sure you have enough money to cover those costs before you start the process.
And finally, don’t be lulled into forgetting that this is a loan, not a gift.
That means you have to repay the loan. Every month. You may “qualify” for more than you can manage to pay back every month, so before you take a loan, be certain your income is sufficient to make the monthly mortgage payments.
Tip Number 4: Make Sure You Can Meet the Occupancy Requirements.
While having access to VA-backed home loans may be an advantage on the path to home purchase, an area of home buying that can prove difficult for servicemen is the occupancy requirement of VA home loans.
These loans are intended to help veterans get into a single-family residence. As such, VA home loans require that the purchaser be living in the home as his or her primary residence within 60 days of closing.
This can prove difficult for military personnel at times but do the right thing. Make sure your intentions are aligned with the purpose of the loan and that you will be living in the house as your primary residence after purchase.
Tip Number 5: Start Saving.
If you are a veteran looking to get into the housing market, you should not wait to start saving for your dream house. Even with the help of a VA-backed home loan, purchasing a house can be costly.
The loan is just one piece of the home-buying puzzle. There are other fixed costs you will need to be prepared for like hazard insurance, closing costs, pre-paid taxes, and title insurance.
The sooner you start saving, the better.
Tip Number 6: Do Your Homework.
Finally, do your own due diligence.
Look into VA home loan requirements and limitations. Talk to experienced professionals who can help you analyze your options and take the time to educate yourself about mortgages, interest rates, and housing costs.
Having a VA home loan can get you started down the path to homeownership, but it is up to you to make sure you are fully prepared to become a homeowner.
Making well-informed decisions is critical when you are buying your first home. Your home is an investment in your future, so do your best to make the best possible decisions. For more information on this and other important topics, go to VerifyInvestor.com.