The Department of Veterans Affairs funded 1.3 million housing loans for military personnel and veterans in 2020, according to government figures.
How do you determine if a VA home loan is the best option for you?
Here are three questions to consider when weighing your loan options.
Do you have the funds for the initial deposit and closure?
Veterans buying a VA home loan do not need a down payment, while other loans usually require a minimum of 5%. A conventional home loan – a loan not secured by the government – can charge up to 20% of the total loan cost in order to get the best interest rate and avoid paying for private mortgage insurance.
VA charges a mortgage purchase and refinancing financing fee to support its loan program, but veterans do not need to pay a closing fee.
“Most people prefer to fund it with their loan,” said Chris Birk, vice president of mortgage analysis at Veterans United Home Loans.
Birk said the commission is usually between 1.4% and 3.6% of the total loan amount, depending on whether you have used a VA loan before and made a down payment.
But you may not have to pay any commission at all. VA waives funding fees for veterans with a 10% or higher VA rating for service-related disabilities, Purple Heart recipients in active service, eligible surviving spouses, and some others.
Even if you have to pay a funding fee, a VA loan can be cheaper than other options. Veterans do not pay certain third party VA loan fees, such as attorney fees, notary fees, and buying broker costs.
The large difference in commission fees can vary depending on the lender. Some lenders who do not charge specific lenders for a VA loan may require a commission on other types of loans.
“The question to ask your lender is how many months in the future it will take to pay commission on a VA loan compared to any other type of loan,” said Sara Valesano, financial advisor to Edward Jones Investments. “Then you can determine if you will keep your loan for at least that length of time.”
How long do you plan to live in the house?
If you are planning to move soon, think about what you plan to do with the home you are buying now. You may not be able to sell it at the same time you buy your next home.
Birk said more than one VA loan can be obtained at the same time. Having two loans can buy you time to sell your first home or rent it out if you met certain requirements…
Veterans looking to fund another home purchase with a VA loan must have sufficient VA loan eligibility and may also need to make a down payment on a second mortgage, he said.
If you are planning to remodel your home or use it as a secondary home or vacation home, you may want to consider getting a regular mortgage.
“VA buyers should intend to take their new home as their primary residence,” Birk said. “But after living in it for a while, they can rent it out.”
The typical housing requirement for a VA home loan is around one year. Other government-backed loans, such as the Federal Housing Administration and the USDA, have similar requirements for the premises they occupy.
Will the home you are looking to buy pass VA certification?
VA home appraisal has stricter requirements than conventional loans. If you are in the mood for locking the top, you might want to consider a VA repair loan or a regular home loan.
According to Michelle Wendt of Wendt Appraisal Services, VA evaluators focus on three core requirements: home safety, hygiene and structural integrity.
“We’re going to go in and make sure we take a close look at any issues we have,” she said.
“We look at things like curved walls, rotten basement concrete, rotten planks. We are looking for any potential security issues that may arise while you live in the home. An old home cannot have mold or flaking paint that could pose a lead hazard in the future. ”
Peeling paint, bare wood such as under the eaves, and poor drainage or water permeability around a home’s foundations may pass another home assessment, Wendt said, but it will not pass a VA assessment.
– Brittany Crocker is the editor-in-chief of Three Creeks Media.
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