Life in the military can be exciting and challenging, especially when it comes to buying a home. As a veteran, you have earned the benefits of a Veteran’s Administration (VA) Home Loan. But is this type of loan right for you?
Temporary Duty Stationed: Should I Rent or Buy?
Many people find that buying a home can be beneficial, even if you may need to move in the next few years. Monthly mortgage payments can be lower than paying rent for a comparable rental property. You are also building equity to help you with future purchases.
If you do buy a home and are then transferred, you could sell the house or keep it as a rental property. Keep both options in mind as you work with your real estate agent to research the market in the area where you want to buy.
What If I Buy a Home and I Am Transferred?
In general, real estate values tend to increase over time. This means you could benefit from market appreciation if you do have to sell your home. Choose a home at a price point that will make it easy to sell if you need to.
Many people in the military prefer to keep the house as a rental property for ongoing, additional income. If there are months when you don't have tenants, be sure that you can still afford the mortgage payment and maintenance expenses plus the mortgage payment on your second home.
Are You A Veteran & Interested In Buying A Home?
What Qualifies Me for a VA Home Loan?
VA loans are available to veterans in good standing. Your military rank does not matter, but there are requirements about length of service. In general, these loans are an option when you’ve served 181 days during peacetime, 90 days during war time, or six years of service in the Reserves or National Guard.
VA loans are guaranteed by the VA, so they have some advantages compared to conventional loans.
- The minimum credit score for a VA loan is 580.
- VA allows the highest debt to income ratio of just about any program. They have preferred parameters of 29/41, which means that lenders want your overall housing costs to be less than 27% of your gross monthly income, and your mortgage payment plus monthly debts to be less than 41% of your gross monthly income. The VA can sometimes allow much higher ratios in certain situations.
- Past transfers from duty station to duty station do not affect eligibility.
VA Home Loan Myths
Myth 1 - VA loans are handled by the VA.
The Veterans Administration guarantees the loans, but it doesn’t actually give you the money for it. You get the money from, and make payments to, a VA-approved lender. The VA also sets guidelines for qualification. A lender will look at your situation (credit score, debts, income, etc.) to be sure that you qualify.
Myth 2 - VA loans can only be used once, and not every veteran qualifies.
Veterans can use their VA loan benefit multiple times. You can buy a house with a VA loan and get another VA loan if you move to a new house. Depending on your circumstances, you may be able to keep the first house while getting a VA loan on the second house.
Myth 3 - You don’t have closing costs.
It’s true that the VA does not require a down payment when taking out a VA loan. However, there are “funding fees” added to your loan amount. You will have closing costs and prepaids similar to other loan programs. These include taxes, insurance, lender fees, title fees, etc.
Myth 4 - VA loans have difficult property requirements.
VA appraisals are very similar to other loan programs, and the requirements are essentially the same. The main difference is that you can only use VA certified appraisers. The VA also has Minimum Property Requirements (MPRs). Essentially, the VA wants to ensure that veterans live in a safe, secure homes.
Myth 5 - Because it’s a government program, the process takes longer.
On average, VA home loans don’t take any longer than other loans unless there is a government shutdown or other unforeseen factors. Sometimes there are delays if the VA portal is experiencing difficulties or if appraisers are in a very busy period.
What Are the Pros and Cons of a VA Home Loan?
There is no down payment required if your home is under the current county loan limits. Because the VA is guaranteeing the loan, you are not required to buy Private Mortgage Insurance (PMI). This reduces your overall monthly payment and could save you thousands of dollars over the life of a loan.
There are also special “PENFED Dream Makers” grants available for veterans in a lower income bracket.
While you are not required to make a down payment, “funding fees” are added to your loan. This money goes to the Veteran’s Administration to help offset the costs of guaranteeing the loan.
There are also occupancy requirements, so VA loans can only be used for your primary residence. You cannot buy a rental property using a VA loan. VA appraisals may take a little longer than normal because you must use a VA-approved appraiser. The VA appraiser list is relatively small, so they tend to have pretty heavy workloads. However, your wait time depends on your appraiser's workload at any given time.
We Help Veterans Find The Best Solutions For Their Family
How Long Does It Take To Buy a Home with a VA Loan?
Step 1 - Initial Meeting with Lender
The first step in buying a home is getting prequalified with a lender. Even if you are not planning to buying a home for a couple of years, it is never too early to make a plan.
If you're applying for a Veteran’s Administration (VA) loan, you’ll need to get a Certificate of Eligibility. The certificate confirms whether you have met the minimum requirements for VA loan eligibility. Your lender can help you get the form.
Step 2 - The Home Search
You can search for homes online, by driving around a desired neighborhood, or by working with a realtor in your area. Realtors access the Multiple Listing Service (MLS) and help buyers find the right home for their needs.
The VA has specific standards for home appraisals. Lenders hire VA-approved appraisers to make sure the home is worth the asking price and they ensure that it meets the VA’s Minimum Property Requirements (MPRs). Buying a home that is move-in ready and requires few fixes will help the process go faster and smoother.
Step 3 - After You’ve Found a Home
Your realtor will help you make an offer on a home. The offer outlines the purchase price and other stipulations. If the seller accepts your offer, you have a contract! This process usually takes a few days. Your realtor and lender will then help you order home inspections and appraisals. They'll also advise on what documents you need to gather to prepare for closing.
Step 4 - Closing
Finally, it’s time to “close” on your home, which is when you officially gain ownership of the house.
On closing day, all parties involved meet at the title company to review and sign papers that explain the mortgage, note and other documents. The closing process on a VA loan will be about the same as with any other loan. However, you will likely not need as much cash at closing since making a down payment is optional.
While every situation is different, buying a home usually takes around 30 to 45 days.
Is a VA Home Loan Right for Me?
Advantages of a VA Loan
No down payment is required for a VA home loan. You have the option of making a down payment if you want to lower your loan amount or monthly payment, but it is not required. You are not required to purchase Private Mortgage Insurance (PMI) because your loan is guaranteed by the VA. There is a Funding Fee required for VA loans. This is paid to the VA to help offset the costs of a VA loan guarantee. However, much of this cost is offset by the fact that you don’t have a down payment or PMI.
Advantages of a Conventional Loan
If you have a great credit score and 20% down payment, then a conventional loan may be a better option. Since you can only use VA loans for your primary residence, you may need to acquire a conventional loan for a second home or investment property.
Your lender can review both programs and help you make an informed decision. By meeting with lender first, you can review your information and pre-qualify for a loan. Pre-qualification will help you determine how much you can afford to spend on a house before you begin your home search.
Interested in Buying Home with a VA Loan, But Still Have Questions?
How to Get Started Buying a Home with a VA Loan
VA loans are a benefit that veterans earn for their military service, They are available to veterans in good standing or their surviving spouses. There are three key steps to securing a VA home loan:
1. Prequalifying / Pre-approval
To begin the process, you need to request a Certificate of Eligibility. Your lender can also help you obtain one. The certificate verifies that you meet the service requirements for a VA loan.
Then, talk with a lender to get pre-qualified. When you pre-qualify, you'll know how much money you can borrow so you can begin searching for a home in your price range.
2. The Loan Process
Once you're prequalified for a loan, you can start shopping for your new home. Working with a realtor may make your home search easier because they have access to more homes than those that appear on the internet.
Realtors help you put in an offer and ultimately get a contract on the house. Once you have a contract, you’ll begin inspections, appraisal, etc. Be sure to get your income and asset documents to your lender in a timely manner.
Closing on a VA loan is slightly different than other loans.
- You are not required to make a down payment on a VA loan if you stay under the loan limit for your area.
- The VA adds a Funding Fee to your loan amount, but you don’t have to pay it out of pocket.
- You may need a DD 214 form if you have been discharged from military service. While not all veterans need one, it's a good idea to find your DD 214 and get it to your lender just in case. If you do not have a copy, you can apply for one through the VA benefits portal
Meeting with your mortgage lender before you begin house hunting can help you plan for a smooth home buying process. While the lender can’t give specific financial advice and every situation is different, your lender can serve as your “coach” to help you prepare. They will walk you through each step, help you determine which loan is best for you, and ensure you are comfortable with the responsibilities of home ownership.
Lincoln Lending (NMLS 398026) has an experienced team who can talk with you about your plans and coach you through the process. We are glad to offer a no-cost, no-obligation information session to review your specific situation and the options available. To schedule a session, please call (405) 799-5363 or email us at Info@LincolnOK.com.