Expectations when it comes to VA loans tend to vary depending on who you ask. Some people think the option is only open to certain members of the military, while others assume that the benefits are limited when it comes to the type of property you can buy. But the truth is that VA loans offer incredible benefits that regular home buyers simply don’t have access to, even with an FHA loan or other special loan program. However a failure to understand those benefits can end up costing a service member dearly. It’s time to set the record straight.
Ultimately, the experience each applicant has with their loan will depend on their lender. The government is backing the loan with a promise to pay in the case of buyer default, but the government isn’t supplying the funds. Lenders have the right to deny applicants based on a number of different factors, from their credit score to their military history. But because the federal government is taking responsibility for the loan, hopeful home buyers can generally expect cooperation from the lenders as long as they meet a few minimum standards.
Time, Scores, and Fees
All members of the five major branches will need a minimum credit score of at least 620. They’ll also need to serve at least six months (181 days) during peacetime or three months (90 days) during wartime. All members of the National Guard and the Reserves will need to have served six years before applying. Some widows and widowers of military members who passed away during service may also be eligible for a VA loan. Finally, if the loan is approved, members will need to pay a fee directly to the Department of Veterans Affair (called the VA Funding Fee). If a service member was disabled during duty, they’re typically not asked to pay the VA Funding Fee.
Military members can usually obtain their Certificate of Eligibility (COE) directly from the lender, as VA-approved lenders have a special database of past and active servicemen. The COE will tell a lender when the applicant served, what their military status was, and what their VA benefits are. If the lender doesn’t have their name on record though, an applicant can still apply through the VA Benefits Portal. Applicants may not need to have a down payment for the home, though they are encouraged to save as much money as possible before applying. A higher down payment will mean a lower VA Funding Fee and a higher share of equity in the property.
Mortgages and Homes
Applicants can choose an ARM mortgage or a standard 10- to 30-year mortgage. Because the government is guaranteeing the loan, buyers don’t typically need Private Mortgage Insurance if they’re unable to save 20% of the home’s purchase price as a down-payment. The amount the government guarantees will be based on the housing demand of where the property is purchased (e.g., the government will guarantee more of the loan in New York City than in Cypress.) VA loans qualify for short-sales, foreclosures, and standard sales on anything from single-family homes to vacant land.
VA loans vary based on applicant and lender, but they provide a major opportunity for military members who may not otherwise be able to afford to buy a home. The best way to tailor expectations is to approach several VA-approved lenders to talk about what they can offer before choosing finalizing an application.