VA home loans refer to mortgage loans that the US Department of Veterans Affairs has guaranteed, enabling participating military personnel and veterans to buy homes with little or no down payment. Due to no mortgage insurance and relatively liberal credit score requirement, VA loans have emerged as a popular choice among homebuyers. But are VA loans as good as they appear to be?
Advantages of VA Home Loans
One of the biggest strengths for the VA home loan is that this can be done with no money down. This makes homeownership more possible for first time homeowners who cannot come up with cash for a down payment. VA loans also do not necessitate the payment of monthly mortgage insurance as is required by most low or zero down payment loan schemes. This can save you hundreds of dollars per month.
Also, the credit requirements of VA home loans are slightly more lenient than those of conventional loans. It is okay if your credit score is as low as 580 to 620, depending on the lender. Having credit problems in the past, missed payments, or even a bankruptcy or foreclosure in your history does not necessarily disqualify you from getting a loan when you apply for an FHA loan.
VA home loans also contain little closing costs due to the restrictions placed on the ability of lenders to charge origination fees. This saves you more cash to take to the closing table. In regards to interest rates, rates on VA loans are also constrained to the level that is prevalent among conventional conforming loans. Thus, they generally have lower interest rates than other government guarantee financing.
Disadvantages of VA Home Loans
While VA loans offer nice perks, there are some potential drawbacks borrowers should consider:While VA loans offer nice perks, there are some potential drawbacks borrowers should consider:
Competition - VA loans are becoming more popular as more veterans and military members become aware of the program. In competitive markets, VA offers may be overshadowed just because of the appraisal contingencies and loan limits. Cash and conventional loan offers are more attractive to sellers, which is why it is recommended to use them.
Initial Expenses – With no down payment VA loan, your monthly installments will be cheaper. However, do be prepared to incur a funding fee of between 2 – 3 percent of the loan amount in initial costs. This is added to your loan balance which ultimately makes it harder for you to pay back the loan. With a 200000 loan, one would end up paying between 4000-6000 in fees.
Loan Limits – In some locales, VA conforming loan limits may be insufficient to finance the purchase of homes in pricier neighborhoods. However, basic VA loans are limited to county loan limits. This is the only way that you can be able to qualify for higher jumbo loan amounts as is required.
Strict Approval – It may, therefore, take longer to obtain approval for a VA loan with a VA appraisal as well as other VA underwriting requirements. VA loans also have additional requirements of residency, credit score checks, income eligibility, and home inspection that make the loan process longer. If the VA deems you as a poor credit risk, they will be within their rights to decline to guarantee the loan.
VA Loan Requirements
To qualify for a VA home loan, you must meet VA eligibility requirements:To qualify for a VA home loan, you must meet VA eligibility requirements:
Minimum service periods:
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Active duty members: 90 days
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Reservists and National Guard: 6 years
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Veterans: 181 days and discharge with other than an honorable discharge.
Widows of disabled veterans who passed away due to their injuries incurred in the line of duty or from service-connected ailments may also apply.
In addition to your service requirement, you'll need to show:In addition to your service requirement, you'll need to show:
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Fair credit (580-620+ score)
- Enough and regular income to meet the requirements
VA guidelines also have more relaxed debt-to-income ratio restrictions which are at 41% instead of the 36% set for conventional loans.
It also calls for a Certificate of Eligibility (COE). This serves to reassures lenders that you are qualified based on your service history.
A COE can be received from the lender or by applying online with DD214 discharge papers and other paperwork.
Guidelines to Follow for a VA Home Loan Approval
It is advisable to get pre approval when one is out looking for VA home loan as mentioned in this article. This is a good way to show the sellers that you are serious. Follow these tips for getting VA purchase loan approval:Follow these tips for getting VA purchase loan approval:
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Get copies of your credit reports and credit scores from the three credit bureaus. Challenge all mistakes so you can enhance your scores. Make sure that credit card balances are below 30% of the credit limits.
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Ensure all source of income and tax papers which the lenders will need to determine your income and assets as well as your employment status are assembled. VA loans are very documenting demanding.
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Be pre-approved for the loan and if approved submit a detailed loan application alongside all VA forms and papers. Expedite efforts in meeting any other requirements for the final loan approval.
- Be prepared to go full speed on a home where you would like to submit an offer and have the offer based on VA appraisal. Borrowers in fully approved credit offers stand a better chance.
Are VA Loans Good?
VA home loans can be a great choice due to benefits such as no down payment and no regular mortgage insurance. Easy credit terms make it possible for more veterans and military personnel to access financing also. Just beware of restrictions on loans, long approval times, and initial charges. It is important to weigh the advantages and disadvantages when deciding to apply for a VA home loan.
