Active military and military veterans often have a great mortgage loan option – the VA house loan. This government-backed program offers significant financing incentives for military families in the United States. VA home loan programs are backed by the Department of Veterans Affairs and are an excellent option for millions of Americans who are or who were in the military.
Are you looking for a home loan this year? If you are in the military or were, you should learn more about VA loan benefits. There are many advantages to VA mortgages that are not available to many other borrowers.
The VA estimates that at least 23 million Americans are eligible for a VA house loan; some of these people may be spouses of military or ex-military members. Many people do not even know that they are eligible!
VA House Loans Offer 100% Financing
Probably the biggest reason that veterans choose a VA home loan in 2017 is that you can get 100% financing for your home purchase. This means you will not need to save money for a down payment. Instead, you can use your savings to fix up the home or to use for something else you need.
There are very few 100% financing home loans with no down-payments available in the US today. After the last market crash, most lenders got out of the 100% financing business. The only 100% financing products available on the market today are government-backed loans, including VA and USDA-loans.
The lender can afford to risk a 100% financing loan to military veterans because the government will pay back the lender if the borrower does not pay.
If you are a veteran or in the military and are eligible for this loan, it is very advisable to take it so that you can put no money down on your home.
Low VA Interest Rates
Historically, VA loan rates have very low interest rates. For many borrowers, the rates may be lower than market rates. The reason for this is that the lender knows it will be paid back if you do not pay, so it can afford to offer a low rate even to a higher risk borrower.
Many people are seeking a FHA loan application that offers a low rate, but the rates are not as low as what the VA loan program can offer you.
Low Credit Scores Ok
Lenders are very forgiving with credit scores for VA loans, too. Some lenders will allow you to have a credit score as low as 620, while others want to see a credit score of 640. As of 2018, there is still no minimum credit score for VA loans.
These are very reasonable credit score requirements to get you into a home. You will find that you have more choice of lenders if you have a higher credit score. Different VA-approved lenders will have different credit score requirements.
Conventional lenders normally require that you have a 680-credit score. Higher scores usually are required if you want to get the best interest rates.
Closing Cost Options
Even if you are able to get a 100% financing loan, you still need to worry about closing costs. Every mortgage loan has several thousand dollars of closing costs. The VA house loan is no different. But the VA allows the seller to pay a portion of the closing costs. So, you may be able to really get a 100% financing home loan and most of your closing costs paid.
Not every seller will be willing to pay closing costs, but it never harms anyone to ask.
Debt to Income Ratio
The VA wants to be sure that you have enough income to pay your mortgage and your other debt obligations. The typical DTI ratio for VA loans is 41%. This means that the total of your monthly debt payments cannot be more than 41% of your gross income.
However, some VA-approved lenders will allow some borrowers to have a higher DTI. If you have a higher income and/or a higher credit score, you may be able to ask your lender for an exception to the DTI rule.
When you get a home under contract, the VA must conduct an appraisal to check the value and condition of the home. The VA-approved appraiser will gauge the value of the home based upon similar homes in the area. It also will check the condition of the property compared to the Minimum Property Requirements established by the VA.
The VA needs to ensure that the home is of good enough quality and is safe for the vet.
If the property is valued below what you agreed to pay, this can cause a problem. If the property does not appraise for the sales price, you may ask for a Reconsideration of Value. Or, you can make up the difference yourself, or find another home.
Some property problems may need to be fixed before the loan can close. It is a smart idea to work with a real estate agent who knows the Minimum Property Requirements expected by the VA.
The VA also wants to see that you have additional income left each month after all debts are paid. This ensures that you and your family will have enough income to pay for other basic needs.
VA house loans have a low foreclosure rate due in part to requirements for residual income.
The Bottom Line
The VA house loan program in 2017 is the best option for military members and veterans who can qualify. The rates and qualification requirements are very reasonable, and 100% financing cannot be beat!