The VA assists veterans, service members, and eligible surviving spouses in buying a home. They offer a home loan guaranty benefit and other programs related to housing to help you retain, purchase, repair, build, or adapt a home for your own personal occupancy. Veterans home loans are supplied by mortgage companies, banks, and other private lenders. The lender is able to provide you with more favorable terms because the VA guarantees a portion of the loan. This article will get you started on obtaining home loans for veterans.
What Are Home Loans for Veterans?
The United States Department of Veterans Affairs (VA) guarantees VA loans in the United States. However, the mortgage loans are issued by qualified lenders. Veteran home loans were designed to provide long-term financing for eligible veterans and their surviving spouses, as long as they do not remarry.
The VA direct home loan program was essentially created to help veterans purchase properties with no down payment and to provide home financing to eligible veterans in areas where private financing usually is not available. The VA generally designates eligible areas as housing credit shortage areas. These areas typically are not near commuting or metropolitan areas of large cities. Instead, they are mostly in small towns and cities or rural areas.
Without private mortgage insurance (PMI), the VA loan allows veterans 103.3 percent financing. Or, they offer a 20 percent second mortgage and as much as $6,000 for improvements that make a home more energy efficient. 0 to 3.3 percent of the loan amount is paid to the VA as a funding fee, but this fee can also be financed, and in some cases, the fee is waived.
More of your mortgage payment goes right toward qualifying for your loan amount since there is no monthly PMI. This allows for a larger loan with the same payment. Veterans may borrow up to 1000 percent of reasonable value in a refinance where a new VA loan is created and where allowed by state laws. Or, in a refinance where there is a VA loan refinancing to a VA loan, the veteran or eligible spouse may borrow as much as 100.5 percent of the total loan amount. The additional .5 percent is for the funding fee.
Compared to the traditional conforming / Fannie Mae loans, veterans home loans allow veterans to qualify for larger loan amounts. Assuming the veteran has no monthly bills, the VA will insure a mortgage where the monthly loan payment is up to 41 percent of the gross monthly income. This is compared to the 28 percent for a conforming loan. Though the maximum VA loan guarantee varies by county, the max with no down payment is typically $417,000. Yet, in certain specified high-cost counties, that number may jump to almost $1.1 million.
How to Apply for a VA Home Loan
There are six important steps you must complete to apply for VA home loans. You need to find a lender that is approved by the VA, pre-qualify for the loan, select your home, draw up the purchase contract, have the VA appraise the property, and finalize the loan. When looking at how to get a VA home loan, it is important to note that the law requires the following:
- The veteran must be a satisfactory credit risk.
- The applicant must be an eligible veteran with available entitlement.
- The income of the veteran (and spouse) must be sufficient and stable to cover the costs of owning a home, take care of other expenses and obligations, meet the mortgage payments, and have enough left over to support the family.
- Within a reasonable amount of time after closing the loan, the veteran must occupy or intend to occupy the property.
- The loan must be for an eligible purpose.
Other specific income and other qualifying requirements will be covered with you by an experienced mortgage lender.
Once you know you are eligible for a loan, the next step is to find a lender approved by the VA. A lender can supply you with a loan estimate and point out any credit issues you may have. It pays to shop around. Different lenders will have different closing costs above and beyond the price of the home. This is incurred by sellers and buyers when transferring ownership of a property.
As you figure out how to apply for a VA home loan, you can determine how much borrowing power you have by pre-qualifying for a loan. This involves letting your lender know about your assets and income. You can find out if you qualify for a given loan based on that information. It is highly recommended though not required that you pre-qualify. If you skip pre-qualifying, you may end up looking at properties that you would not be able to afford.
The next step is to select your home. There are several ways to do this, including online, using a real estate agent, or consulting newspapers and other guides. Once you have selected a home you can afford (see the mortgage calculator information below to learn more), you need to draw up a purchase contract, also referred to as a purchase agreement or sales agreement. This basically covers the finalized terms and conditions upon which the transfer of the property will take place.
In order to finalize the loan, you have to request an appraisal from the VA because the loan amount cannot exceed the VA’s estimate of the property value. The request for the appraisal usually comes from the lender though anyone can request it. The loan may then be approved if the lender determines that you qualify on the basis of income and credit and the established value is acceptable to all parties.
Mortgage Calculator for VA Loans
With the Veterans United mortgage calculator, you can get a snapshot of what your monthly payments would be with veterans home loans. This is a valuable tool to help you find the right home for your budget and determine how much you would pay each month. With the mortgage calculator, VA loan recipients enter their loan type, type of service, purchase price of home, estimated down payment, loan term and estimated rate, credit score, and other factors to instantly estimate their monthly mortgage payment.
This should give you a good idea of how to get started with a VA home loan. If you have any more questions about the home buying benefits of the VA Loan Program, or you are ready to get started, do not hesitate to get in touch with our friendly experts. You will be one step closer to having your own home, and there are no obligations.