The intensity of the housing market means that now more than ever, veterans and active duty service members are looking for the least expensive way to buy a home. Luckily for us, Paul Corbett, host of the online show “The SITREP,” produced by the VA New England Healthcare System, breaks it all down in the latest segment.
This video covers everything from how to apply, PCSing tips, credit scores and more. It’s a long and comprehensive video that lasts for almost two hours. If you’re interested in learning more about a VA loan, we’re covering the highlights here until you have time to watch the full video.
This year, the VA is expected to guarantee or close on 1.7 million loans, marking the second record-setting year for the VA. That means the VA expects 1.7 million veterans and active duty service members are expected to purchase or refinance their homes.
What is a VA Home Loan?
VA home loans were created in 1944 as a way to help World War II veterans coming back from the Pacific and European theaters buy homes with reasonable interest rates. Since 1944, nearly 30 million VA loans have been guaranteed through the system.
It’s important to remember this benefit isn’t just for veterans – it’s for any active duty, reserve, national guard personnel who met the service requirements. Surprisingly, only 14% of veterans nationally choose to use a VA loan.
Where does VA Home Loan money come from?
Contrary to what many assume, the VA does not issue money for a VA loan. Conventional lending institutions like banks and credit unions issue the funds. The VA guarantees 25% of the amount borrowed by the veteran. Imagine a veteran chooses to finance $400,000 for a home after certifying eligibility through the VA. Then the VA issues the lender a Certificate of Guarantee. The COG means that 25% of whatever the lender issues is covered. If the service member is not able to make payment or defaults on the loan, the VA will send a check to the lender for 25% of what’s borrowed. In other words, the VA is taking 25% of the risk for the lender. That’s one of the reasons why the VA has the best rates and the most favorable credit guidelines. VA loans don’t require Private Mortgage Insurance (PMI), unlike conventional loans.
VA Home Loan borrowing limits + the Blue Water Navy Act
As a result of the Blue Water Navy Act, there is no limit on the amount of money a veteran or service member can borrow to purchase a home. That means eligible veterans, service members, and survivors who are fully eligible for a VA home loan no longer have limits on loans over $144,000. However, in order for this to be true, one of these two criteria must be met:
- Never used your home loan benefit, or paid a previous VA loan in full and sold the property (in this case, you’d have your full entitlement restored), or
- Used your home loan benefit but had a foreclosure or compromise claim (also called a short sale) and repaid us in full
First-time use VA Home Loan
You are eligible to use your VA loan as many times as you like. However, non-disabled veterans and active duty service members might be required to pay a funding fee and/or a subsequence use fee if you choose to use your VA loan more than once. Veterans with a 10% or more service-connected disability have no funding fees.
PCS and VA Home Loans
It’s entirely possible to retain ownership of a home, PCS, and use a VA loan to buy a new home at a new installation. There will be a subsequent use fee associated with this purchase because active duty Service members are not exempt from subsequent use fees. The one exception to this rule is if an active duty Service member has been awarded a Purple Heart. In that case, they are exempt from all funding fees in perpetuity.
Researching a VA Home Loan lender
If you’re considering purchasing a home, it’s highly recommended that you explore the VA Home Loan page, where you can look up quarterly, and annual lender volume reports. This will help you understand which lenders might be more amenable to VA loans. How to shop for a mortgage is equally as important as selecting the perfect house for you and your family. The more research you put into this part of the process, the better the result. You should look for a VA home loan lender who is familiar with military culture and understands your unique experiences as a Service member.
VA Home Loan Funding Fees
Funding fees are not out of pocket costs when you purchase a home. This amount is financed into the cost of the loan. For veterans with first-time use, the funding fee is 2.3% of the loan amount. On a $100,000 loan, the funding fee is $2,300, so the loan amount would be 102,300. Funding fees change based on how much money is being financed. If you choose to put a 5 or 10% down payment on the house, the funding fees will change.
Next, pre-qualifying your loan amount can help you save time and avoid potential surprises. You’ll need to provide information about your income, credit history, and other information. A pre-qualification letter helps establish the price range for a home you can afford. It doesn’t guarantee that you’ll be approved for your loan.
You’ll need to gather a copy of your LES if you’re on active duty, your DD-214 if you’re a veteran, along with any relevant financial paperwork that establishes your income and marital status.
Credit score for VA Home Loan
The VA doesn’t require a certain credit score but having a higher score might mean better interest rates and loan terms. Private lenders that issue VA loans usually want to see scores between 580-660 to be eligible for a loan.
Three tips for first-time buyer with VA Home Loan
Rick says the best way to make the home buying process fun and enjoyable is to follow these three tips.
- Have an honest conversation about the financial feasibility of making a home purchase. Having a candid conversation will help make sure that you and your family are ready.
- Research various lenders that work with VA loans and make sure you select a good lender.
- Make sure you have some money saved. Home inspections, escrow, and appraisal costs should all be prepared for ahead of time. Know what you can spend comfortably before you pull the trigger.
- 01:12:03 Refinancing a VA Home Loan
- 01:14:13 VA Home Loan cash out refinance option
- 01:15:57 VA Home Loan refinance funding fee
- 01:17:15 VA Home Loan funding fee waiver
- 01:18:38 Service-connection and VA Home Loans
- 01:20:30 Active Duty funding fees VA Home Loans
- 01:22:50 Foreclosure and VA Home Loans
- 01:24:09 Compromised loss with COE
- 01:24:33 Paying back compromised loss to VA
- 01:26:42 Waiting periods on foreclosure and bankruptcy with VA Home Loans
- 01:29:57 Three tips for first time buyer with VA Home Loan
- 01:32:00 Which credit bureau does VA Home Loan use
- 01:41:46 Be your own advocate and be accountable
- 01:44:00 Closing remarks