An interview with Eric Wilson, Broker with RE/MAX Key Properties Broker and Mike Martin, Motto Mortgage Branch Manager, NMLS #296965
In honor of Veteran’s Day, we are highlighting a loan program for veterans, active duty military members and surviving spouses of military killed in combat: the VA home loan. This 100% financing program can be a good fit for eligible veterans and service members without sterling credit or the ability to make a 20 percent down payment.
“Veterans serve the highest honor by protecting our country and fighting for our freedoms. We find great honor in assisting our local heroes in their real estate journey.” – Eric Wilson, Broker
A VA loan is a $0 down mortgage option available to veterans, service members and surviving spouses of military killed in combat. VA loans can be issued by private lenders, including a mortgage company or bank, and guaranteed by the U.S. Department of Veterans Affairs (VA).
The VA home loan was created in 1944 by the United States government to assist returning service members purchase homes without needing a down payment or excellent credit. This historic program has guaranteed more than 25 million VA loans, helping veterans and active duty military members purchase or refinance a home.
Broker Eric Wilson: My first veteran home buyer reached out to me and had been pre-approved for a VA home loan by his lender. Since I hadn’t previously worked with a VA home loan I had a lot to learn and started educating myself about VA loans, their benefits, and some of the standards the VA has in place for the home. All of this helped me understand how I could best help my client purchase a great home. That was in 2018, and since then I’ve really enjoyed working with veterans and helping them find their next home.
Today, the VA home loan is more important than ever. Over the last decade in particular, VA loans have provided a lifeline for veterans and active military homebuyers facing higher credit score and down payment requirements needed for other types of loans. VA loans are a specialized loan product, well-earned through service, but they aren’t more difficult or cumbersome than other types of home loans.
Most local lenders do offer VA home loans, but they may not all offer lending on the same types of homes. For example, some housing markets don’t have a lot of demand for mobile homes, while others have a large inventory of mobile homes for sale and a high demand.
A lender who doesn’t see the value of VA home loans on mobile homes or manufactured homes may not offer them. Some housing markets don’t support construction loans, and others don’t support VA loans to buy condo units because the inventory simply is not there.
Eligible veterans, service members, and survivors with full entitlement no longer have limits on loans. This means you won’t have to pay a down payment, and we guarantee to your lender that if you default on a loan, the VA will pay them up to 25% of the loan amount.
VA home construction loans come with a unique set of challenges making it difficult for qualified borrowers to find lenders willing to do a true $0 down VA construction loan. While the VA insures a portion of each loan, it's up to individual VA lenders to determine what kind of loans they'll issue. And the level of risk in new construction often causes many VA lenders to shy away. What’s more common is getting a construction loan from a builder or a local lender and then refinancing that into a permanent VA loan.
There are no restrictions to where you buy or for how much. The Department of Veterans Affairs does not have a limit to how much you can borrow but, keep in mind, you do still have to qualify with proof of income and employment.
Because VA loans are intended to help people purchase or refinance a primary residence, you cannot legally purchase a home with a VA loan that you don’t intend to occupy for the majority of the year.
Because VA loans are intended for the purchase of primary residences, you cannot buy a property for the express purpose of having it be a rental property. However, you can convert that property into an investment property if you move at some point. If the property is being converted, it’s a good idea to talk to your lender.
To be eligible for a VA loan, you or your spouse must meet the basic service requirements set by the Department of Veterans Affairs (VA), have a valid Certificate of Eligibility (COE) and satisfy the lender's credit and income requirements.
The VA funding fee is a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. Qualified disabled veterans are exempt from the funding fee.
You can use gifted money toward your closing costs. The VA loan program does not require any down payment. That means there's no minimum borrower contribution. However, some home buyers choose to make a down payment with VA loan anyway, and you're free to use a cash gift to do so.
Two main programs help VA borrowers refinance to a lower rate -- the VA Streamline Refinance, also known as the Interest Rate Reduction Refinance Loan (IRRRL), and the VA Cash-Out Refinance.
A Streamline Refinance allows veterans who currently have a VA Loan to refinance into a lower interest rate, reducing monthly mortgage costs. Streamline refinance loans feature little paperwork and often require little-to-no costs out of pocket. Borrowers can roll closing costs into their overall loan amount. Some homeowners can also secure a Streamline refinance without an appraisal.
The other popular option, known as the Cash-Out Refinance, allows borrowers to tap into their home's equity and use it as cash. This type of refinance is available to any qualified veteran homeowner, regardless of whether they have a FHA, USDA or conventional loan.
The primary benefits of VA loans are $0 money down, no PMI, flexible credit requirements and highly competitive rates.
The VA loan might be a good fit for eligible veterans and service members without sterling credit or the ability to make a 20 percent down payment. Conversely, borrowers with great credit and enough cash on hand for a large down payment may find that a conventional loan is a better fit. Another thing to consider is that conventional loans do not have a funding fee. Subsequent uses of the VA benefit can get more expensive and depending on the loan amount, the funding fee may make a conventional loan a better long-term financial fit.
Be sure to get pre-qualified with your lender and know your budget and the requirements of the VA loan prior to looking for homes. This will save you time during your search and ensure you are ready to make a great offer once you do find your next home.
Absolutely yes. With the current real estate market and price increases like we’ve seen locally the last year, we have been able to secure financing on jumbo loans through the VA home loan program. Something else to consider, VA jumbo rates are frequently much lower than traditional jumbo loans.
Maybe. The primary benefit of VA financing is 100% financing without monthly mortgage insurance. VA financing frequently is the optimal solution with 20% down but not always. Borrowers with a 20% down payment are best served by reviewing conventional and VA options with their loan officer to determine the best fit.
The funding fee calculation is a percentage of the loan amount has several variables. The 2 most significant are down payment and if it is a first or subsequent use of your VA loan benefit. While a down payment is not required a 5% down payment will noticeably reduce the funding fee. A subsequent use of the VA loan benefit can have a significant impact on the funding fee with less than 5% down or on a cash out refinance.
The funding fee is financed in addition to the base loan amount.
No. The interest rate is determined by the lender and based on the current economy and market conditions, as well as your unique financial situation and level of risk. Therefore, it is very important that you choose a reputable lender that is interested in securing you the best available rate for your long-term investment.
The Department of Veterans Affairs is a great resource to learn more: va.gov.
If you are interested in beginning a home search using a VA loan, reach out to Eric Wilson at RE/MAX Key Properties. An expert on the local market and the VA loan program, Eric has acquired valuable tools to help you achieve your real estate goals.
If you are ready to begin the process of securing a VA home loan, we recommend Motto Mortgage Branch Manager Mike Martin NMLS# 296965. His knowledge and guidance will ensure you are well-represented and make a smart financial decision.